Churn rate is a measure of the number of customers who end their subscription to a product or service over a given period of time.
Churn rate, also known as “customer churn” or “turnover rate”, is a measure of the number of customers who end their subscription to a product or service over a given period of time. Some churn metrics measure the lost revenue from these customers instead of the customer count. Churn metrics can be measured on a gross or net basis (net of new customer or their revenue). Churn rate is a crucial metric for SaaS companies, as it can indicate the health and sustainability of the company.
A high churn rate can signal dissatisfaction among customers and lead to decreased revenue and productivity. On the other hand, a low churn rate can indicate a high level of customer satisfaction and loyalty. All else equal, businesses with customers that churn more often will need to spend more on sales and marketing costs and have more difficulty growing, than businesses with low churn.
There are several ways to calculate churn rate, but a common method is to divide the number of customers who end their subscriptions (or the associated revenue) by the total number of customers (or the total amount of associated revenue) at the beginning of the period. For example, if a company starts the year with 100 customers and 10 of them leave, the churn rate would be 10%. Common period durations can range from monthly to annually and need to be considered differently. A monthly churn of 1% is the equivalent of 12% annual churn.
To reduce churn rate, companies can implement strategies such as improving the customer or employee experience, offering competitive pricing, and addressing any pain points or concerns that may be causing dissatisfaction. The first step in reducing customer churn is to start measuring the reasons that customers churn.
In addition to tracking churn rate, businesses can also track revenue retention rates, which is essentially the opposite of churn rate and measures the number of (or associated revenue from) customers who maintain their subscriptions. To learn what companies can do to increase their retention rate, visit our page on revenue retention rates.
