What is Churn Rate?
Churn Rate is the number of customers that have left your service or business over a given period. The customers have essentially had ‘churned’ down your business. Churn Rate can be calculated in regards to a number of customers lost, percentage of customers lost, value of recurring business lost, and percentage of recurring value lost. For example, when calculating churn as a percentage of customers lost you divide the number of customers lost by the number of customers starting. This can be done quarterly or yearly, but recommended to be done quarterly.
By understanding your churn rate, you can get a better handle on how many customers you are actually retaining. Measuring the loss of customers will give you insight on what creates a higher retention rate. For the most part, it is much more expensive to acquire new customers than to retain existing ones.
Businesses using the recurring revenue model is traditionally where churn rate has been used. E-commerce has been adopting the metric slowly, but churn can be difficult to calculate in e-commerce. The difficulty stems from e-commerce businesses not knowing what counts as a customer churn event. Figuring that out is the key to calculating churn rate and having it produce important insights and measures for your business.
Churn Rate is a growth killer. Use churn rate understanding and measurements to better ensure the health of your business and produce long-term growth.