How to calculate your customer churn rate
Understanding why customers are leaving is one thing, but understanding the rate at which they’re leaving is just as important!
That’s why finding out your customer churn rate is important!
First will quickly explain what customer churn is, the formula, and a step-by-step on how to properly figure it out.
Let’s get into it!
What is Customer Churn?
Customer Churn refers to the rate at which your business loses customers. This number is quite easy to calculate.
Customer Churn is an incredibly important metric to look at since it is more expensive to acquire a new customer than it is to retain one. Add that to the fact that every time you lose a customer, you’re also losing out on future recurring revenue.
You should take the time to understand why customers are leaving so you can make improvements to prevent even more customers from leaving.
One way to understand why customers are leaving is to have a customer feedback strategy!
Churn rate formula
The customer churn rate formula is quite simple. Before you calculate it, you’ll need to determine the period you want to calculate.
Will you calculate for the month, quarterly or the month?
You also need 2 numbers:
- Lost customers
- Total customers at the start of the period
The Churn rate Formula is
(Lost customers / Total customers at the start of the period) X 100
For example, let’s say that at the beginning of the month, your business had 1,000 customers. By the end of the month, out of those 1,000 customers, 50 of them left your business.
That would represent a 5% customer churn for the month.
Steps to calculate your churn rate
You can follow these steps to calculate your churn rate step-by-step. You should calculate your customer churn rate every so often to make sure everything is running smoothly!
You can also calculate it to compare your previous churn rates! Ie. January 2020 - March 2020 compared to January 2021 - March 2021
Calculate your customer churn rate in 5 steps:
- Determine which period you want to calculate for Monthly, quarterly or annual
- Find how many customers you had at the beginning of the period
- Find out how many customers left during that period
- Once you have both numbers, divide the number of lost customers by the total number of customers
- Times that number by 100
What’s a good churn rate?
In a perfect world, you would want 0 customers leaving. However, you obviously can’t satisfy every customer (but you can do your best to keep the majority of your customers happy).
The lower the churn rate the better!
Depending on what industry you are in, the average churn rate will vary. Here is some example of reported churn rates of bigger companies:
- Netflix: 2.5% Monthly churn rate
- Disney+: 4.3% Monthly Churn rate
- Spotify: 4.8% Monthly Churn rate
- Hulu: 5.2% Churn Monthly Churn rate
- Peloton: 8% Yearly Churn rate
- Adobe: 10% Yearly Churn rate
- Apple TV+: 15.6% monthly churn rate
You generally want to have a customer churn rate between 2% - 8%. The lower your churn rate, the higher your recurring revenue will be!
Calculate your churn rate today!
When you calculate your churn rate, you can take the necessary steps to improve your business and product! If you notice that your churn rate is on the high side, figure out why.
Is it your customer service? Does your competitor have a better product? Whatever it is, understand what you can do to lower your churn rate.