Definition: Churn Rate

What is churn rate?

Churn rate, also referred to as customer attrition rate, measures the percentage of customers who have terminated their business relationship with a company within a certain period of time. It is an important metric for companies offering subscription-based services to track customer loss over time.

The churn rate can vary greatly in different industries. In 2022, the churn rate in the telecom industry in the US was around 21%, while for SaaS companies it averaged between 5-7%. By monitoring churn rates over time, companies gain valuable insights, such as identify which types of customers are most likely to churn and see how well retention programmes are working.

By truly understanding the causes of churn, such as poor customer service or unattractive products, companies can work on reducing the loss of customers. Through improved offerings, engaging omnichannel experiences and a personalized approach tailored to individual customers' needs, interactions with customers can be strengthened to increase their loyalty and retain their business. As it is typically less costly to retain existing customers than acquire new ones, reducing churn contributes significantly to sustainable growth and the long-term success of a business.

How is the churn rate calculated?

The churn rate is presented as a percentage calculated by taking the number of customers who had left within a period and dividing it by the total number of customers at the beginning of that period.

(Number of customers cancelled / Total initial number of customers) x 100 = Churn rate

For example, let's say a software company had 200 paying customers at the start of the month. During that month, 10 customers cancelled their subscriptions. We take the number of customers who left (10) and divide it by the total initial customer base (200). After converting the number into percentage, we get a churn rate of 5%.

(10 / 200) x 100 = 5% churn rate