churn calculator image

Churn Calculator

Understand the rate at which customers stop using your product or service over a given time period.

What is churn rate?

Churn rate is the percentage of customers that stop using a product or service in a specified period of time. Churn is a way to measure customer retention and satisfaction, most commonly for subscription and software as a service (SaaS) businesses. Analyzing your churn rate while measuring active users will help you understand how to reduce it.

How do I calculate churn rate?

Churn rate is calculated as the percentage of customers who end their relationship with a company within a given period. Most commonly, churn rates are calculated monthly, quarterly, or annually.

To find your churn rate, divide the number of customers lost during a set period by the number of customers at the beginning of that period. For example, if a company had a customer base of 500 at the beginning of the month and lost 50 customers during that month, its monthly churn rate would be 10%.

What is a good churn rate?

A churn rate of 5% annually is often considered low, while anything over 20% is high. An acceptable rate of customer loss depends on various factors, including the lifetime value the retained customers bring compared to lost customers, new acquisitions over the same period of time, and the lifetime of your customers.

Ideally, the lowest possible churn rate is the best rate. When discussing whether the losses are acceptable for your business, it is important to consider the period of time you’re assessing and not to conflate the results of your annual and monthly churn rates or confuse causation and correlation in your analytics.

Though an annual churn of 5% is good, it can often result from various other areas of growth or success within your company. For example, if you acquired new users, if the customers you retained pay more for your service, or if you upsell or cross-sell similar products. Similarly, a monthly churn rate of 2% may not seem high, but it can result in significantly higher total customer losses over the course of a year.

Understanding the effect of churn on revenue is also important for knowing whether your losses are sustainable. When assessing churn rates in relation to a specific change to the business (such as a technical update, a product change, or a marketing campaign), it is important to note these changes are more isolated and subject to a range of other factors. That said, measuring churn is a great way of understanding these campaigns' impact on your overall growth and retention.

How can I reduce churn?

If you’re looking for concrete ways to reduce the rate you’re losing users, check out these five strategies you can implement today.

1. Offer a valuable service or high-quality user experience

Providing a valuable service and high-quality user experience is the most important strategy to reduce churn. Before getting lost in the metrics, remember that a real person is using your product or service—keeping them happy, engaged, and interested is a priority. Providing a quality product or service, ensuring a user-friendly experience, and adapting to customer feedback are all great ways of improving customer retention—and in turn, reducing your churn rate.

2. Understand customer engagement and audience targeting

Analyzing the source of churn is a great way to reduce it. Through customer engagement and audience targeting, you can better understand who most commonly unsubscribes to your product or service. Use customer feedback, NPS surveys, and customer behavioral analytics to find solutions to the problems expressed by users and reduce churn.

3. Create negative churn

Understand expansion revenue and how it impacts your business to develop negative churn—a churn rate supplemented by increased revenue from your retained customers. Analyze your business using a revenue-based churn model to properly manage losses so you can mitigate the impact on your business. Expansion revenue can be generated through upselling, cross-selling, or using variable pricing models that scale the costs along with the quality of the product or service (for example, increased storage or users, faster speeds or performance, and so on).

4. Foster customer loyalty

Offer loyalty incentives to your customers, such as rewards or bonus programs, that motivate them to stay. Though these incentive programs might require an upfront investment, they are well worth it if they increase customer lifetime value or what customers are willing to spend on your product over time. Ensuring that your customers stay for long periods is essential in a subscription-based business, as you earn sustainable revenue over an extended timeframe rather than relying on an immediate product sale.

5. Offset churn with user acquisition

In truth, customer acquisition is not a direct solution to reducing churn, but it can be a short-term solution if you are struggling to reduce a high churn rate. That said, identifying and addressing the source of churn is often a better tactic because customer acquisition can be costlier than customer retention. Remember, your best value comes from long-lasting, high-spending customers.