Churn Rate Formula

What Is Churn Rate?

Companies spend a lot of time and money attracting new customers. An equally important task is finding out how many customers you’re losing each year. That’s what churn rate means. It’s the rate at which you’re losing customers over a period of time.

What Is The Churn Rate Formula?

Knowing your churn rate helps guide your product pricing and may change your entire product and product marketing strategy. The churn rate formula calculates what percentage of customers your business loses over a specific time period.

Churn equals the number of customers lost over a time period divided by the number of active customers at the start of that time period.

Example:

Let’s say Acme Corporation has 70,000 customers at the start of 2024. By the end of 2024, they’ve lost 2,000 customers. You’d take 2,000 divided by 70,000 to get 0.28, which equals about 3%, as their churn rate.

It’s important to note that while 2,000 customers lost may seem like a little or a lot, it’s not providing the full picture. The churn rate formula only looks at the number of customers lost. In that same time period, Acme Corporation could have gained 10,000 more customers.

Tips to Reduce Churn Rate

It’s often much more expensive to acquire a new customer than to keep a current customer. With that in mind, here are a few tips to reduce your churn rate:

Segmentation is key

It’s important to know when your customer signed up, what plan they were on, whether they went through a special support program, or if there was anything else that stood out about their customer experience. Those insights make it easy to slice and dice the data to see if there are certain customer trends surrounding churn.

Iron out your cancellation process

There’s something to say about making the cancellation process easy, but it also doesn’t give you a chance to save the deal or learn what you can do better in the future. Requiring a cancellation questionnaire or a short call with an account executive could be the best thing you do to reduce future churn.

Create sticky features

If your product is easy to switch away from, then churn is naturally going to be higher. One way to combat that is with value-added features that facilitate more commitment from your customers. It could be custom workflows, add-on services, or customer support that’s hard to replicate in the industry.

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