Your churn rate is the amount of customers or subscribers who cut ties with your service or company during a given time period. These customers have “churned.”
Churn rate can be represented in a number of ways, including:
It is possible to have a negative churn rate. This happens when your existing customer base spends more in a given month than they did in the previous month. Businesses who “upsell” their customers to more expensive plans without losing existing business experience negative churn.
Keeping track of your churn rate is tantamount to success. Normally, it’s cheaper and easier to retain customers than it is to go through the process of acquiring new ones. Monitoring churn allows you to consider what you’re doing to keep customers, and see what actions might result in a higher retention rate.
Calculating Churn Rate
Let’s say you are a company that publishes a magazine. You have 100 subscribers. In the month of May, you have seven new customers sign up for subscription service and have 3 end their subscriptions.
Different practitioners may choose to calculate the “churn rate” for this month in different ways. The most traditional formula would be the number of customers lost divided by the number of customers at the start of the month.
Some businesses choose to base their churn rate off of the number of subscribers at the end of the period instead of the beginning of the period.
Churn Rate for eCommerce Businesses
Sometimes, an eCommerce business may wish to calculate its churn rate. However, most eCommerce businesses do not have a recurring revenue model or explicitly defined “subscribers” or “subscriptions.”
To resolve this, eCommerce companies must decide what characteristics constitute a “churn” event. For example, if a company knows that most of their customers who will make a repeat purchase do so within 90 days, they may choose to mark any customer who has not made a purchase in 90 days as “churned.”