Churn Rate
Quick definition
Churn rate is the percentage of customers who stop being customers during a period, compared with the number at the start of the period.
Formula
Churn Rate = Customers Lost ÷ Customers at Start × 100
Formula variables
- Customers Lost
- Customers from the starting group who stopped being customers during the period.
- Customers at Start
- Customers at the start of the period.
Worked example
- Customers at start of month
- 1,000
- Customers lost during the month
- 60
60 ÷ 1,000 × 100
Result: 6%
6% of the starting customers left during the month. The figures are illustrative.
How definitions differ
- Customer churn
- Customers Lost ÷ Customers at Start
- Counts customers regardless of size.
- Revenue churn
- Recurring Revenue Lost ÷ Recurring Revenue at Start
- Counts the revenue of lost customers. Whether downgrades are included, and whether expansion revenue offsets losses (net revenue churn), varies by company.
- What counts as lost
- A customer may be counted as lost at cancellation, at a failed payment or after a period of inactivity.
How to interpret it
Churn shows how fast a customer base erodes. Because it compounds, a small monthly rate can mean a large annual loss.
Churn and retention describe the same behaviour from opposite sides. They are complements only when the period, population, definition and cohort treatment match.
When it is useful
- Tracking customer loss month to month.
- Comparing plans, segments or acquisition sources.
- Estimating customer lifetime.
Limitations
- The result depends on when a customer counts as lost.
- Customer churn and revenue churn can tell different stories.
- Rates for different period lengths are not directly comparable.
Common mistakes
- Including customers acquired during the period in the base.
- Comparing monthly and annual churn directly.
- Treating all lost customers as equally important.