What is a churn rate?

‍
Churn rate refers to the percentage of customers who stop doing business with a company during a specific period. It reflects how many users cancel their subscriptions, memberships, or services, and is often used to evaluate customer retention. Businesses track two main types of churn: customer churn, which focuses on the number of users lost, and revenue churn, which measures the recurring revenue lost due to cancellations. A high churn rate can indicate customer dissatisfaction or strong competition, while a low churn rate suggests loyalty and continued engagement.

Why is churn rate important?

‍
Churn rate is a vital metric for assessing customer satisfaction, forecasting revenue, and planning business growth. It helps companies identify how many customers they are losing and why, allowing them to take action before small problems become major issues. A consistently high churn rate may reveal flaws in the customer experience, product value, or support services. Monitoring churn also helps determine how many new customers are needed to maintain growth and achieve revenue goals. When combined with other metrics like customer lifetime value, churn rate offers a clear picture of overall business health.

How do you calculate churn rate?

‍
To calculate churn rate, divide the number of customers lost during a given period by the total number of customers at the start of that period, then multiply by 100 to get a percentage. The formula is: Churn Rate = (Number of churned customers ÷ Number of existing customers) × 100. This calculation helps businesses track customer retention over time, analyze trends, and make strategic decisions to reduce customer loss and improve satisfaction.