Eliminating the unknown and replacing it with data

Understanding Churn

This is one metric that is no stranger to the ears of marketers. Basically, it measures the number of subscribers that no longer use your services for whatever reason. Customers who have given up on their subscriptions to your products or services are customers that have churned. Given the nature of the metric, it is rather simple to imagine why marketers are ( or should be) keeping an eye on it. While all companies, regardless of the nature of the product sold are faced with churn, it is important to constantly be aware of the existing churn rate to better plan and apply your expansion strategy. The reality is that even a small rate can influence your growth and as you very well know, it’s better to know these things when you still have time to change the direction.

So, to make it clear to anyone who’s reading this, the definition of churn is:

CHURN = THE NUMBER OF CUSTOMERS WHO HAVE DECIDED TO STOP USING YOUR SERVICES/PRODUCTS DURING A SET PERIOD OF TIME

How to measure churn?

The next issue on our agenda is figuring out how to adequately measure your churn rate. It’s one thing to understand the definition of churn and a completely separate one to adequately measure and interpret it. You can only consider churn in your expansion strategies if it reflects reality and has been properly measured.

There is no better way to send the message that your statistics are correct and that you are a serious business than playing with formulas. Of course, an important metric such as churn should have its own formula, ready to be used by anyone. And we are proud to share it with you.

So, let’s say you are interested in figuring out how many customers have churned. First, you need to look at a set period of time. And just as a tip, when gathering data, make sure you set a specific date. Without accurately localizing the moment in which you have collected your information, you will find that interpreting data might be a bit tricky.

Coming back to our issue, consider a set period of time you are looking at. Then, divide the number of users you have lost or to speak in our new found language, churned, by the number of customers you have started with.

CHURN RATE = CHURNED CUSTOMERS / INITIAL CUSTOMERS

But, and this is one big BUT (excuse the phrasing), it’s not so much the number of customers that interests you, but rather their value. Because we are talking about subscriptions here, surely you agree that each customer has a certain value in the eyes of the marketer. Apart from being endlessly important, he brings a particular revenue to the story and that story is the one you want to look at. Basically, the rate that interests you most is the revenue churn rate. To calculate it, you need to consider a set period of time, once again and divide the revenue lost from your existing customers by the total, initial revenue.

REVENUE CHURN RATE= LOST CUSTOMER REVENUE/ INITIAL CUSTOMER REVENUE

A few more things about churn

Before we can wrap this up, we just wanted to draw your attention upon certain facts about churn, in general.

First of all, you need to prepare yourself for an existing churn rate. All businesses, irrespective of their domain, sector, industry have churn. It’s a fact of life, cheered on by competitiveness.

So, simply because your company has its own churn rate should not panic you. There is a churn rate threshold that is generally accepted by most marketers, but this should always be looked upon annually, not monthly. Because monthly, even a small churn rate can have a significant effect on your business. So, the generally accepted churn rate is 5-6%. Still, always remember that this is between you and your business. So, from one point on, you just have to take things personally and accept your churn rate, while doing everything you need to improve it.

Also, when trying to calculate customer churn and revenue churn, try to segment your data before starting to analyze it.