Calculate churn rate in 5 easy steps (+ definition & formula)

Are you aware of how many customers you lose every year? Every month, maybe?

The number of customers you lose over a particular period of time is known as customer churn, or customer turnover. The churn rate is a scary metric. It's also incredibly important.

You won't be able to create improvement plans to reduce turnover rate if you don't know how many customers are leaving your business.

There is a problem with calculating and resolving customer churn. No worries. We will cover everything you need to know about churn rate in this post. Let's begin.

What is customer churn rate?

During a given time period, such as a month or a year, your churn rate is the percentage of customers who cancel or do not renew their subscriptions.

For subscription-based companies - such as SaaS or other subscription-based companies - the churn rate is a critical metric. Your average customer acquisition cost (CAC) will not be recouped if your typical customer doesn't stick around long enough.

CRMs can help you determine your customer churn rate. You may also be able to see how many users you had at the beginning and at the end of a time period in the software you sell.

Churn Rate Formula

For calculating churn rate, multiply lost customers by total customers at the start of the period by 100. If your business had 250 customers at the beginning of the month and lost 10 by the end, you would divide 10 by 250. In this case, the answer is 0.04. If you multiply 0.04 by 100, you get a 4% churn rate per month.

You can use a tool that automatically calculates churn rate if you find that math intimidating as I do.

In addition to eight other crucial customer success metrics, HubSpot's Customer Service Metrics Calculator calculates revenue churn and customer retention rates. Here is an explanation and example of how to calculate your churn rate manually.

How to Calculate Churn Rate

Churn rate is calculated by taking the number of customers you had at the beginning of a given time period and subtracting the number you lost during that period. Subtract the total number of customers you had at the beginning of the time period from the number of lost customers. Divide this number by 100 to get your churn rate.

Churn rate can be calculated by following these steps:

• - Determine a time period: monthly, annual, or quarterly.

• - Count the number of customers you had at the beginning of the period.

• - By the end of the time period, determine the number of customers who churned.

• - Divide the number of lost customers by the number of customers you had prior to the churn.

• - Take that number and multiply it by 100.

Imagine that your software company had 500 customers at the beginning of last quarter.

However, you also lost 50 customers due to expired contracts and a few poor customer service interactions.

Therefore, your quarter's churn rate would be 50 churned customers divided by 500 former customers, and 50 divided by 500 is 0.10.

If you multiply this by 100, you get a 10% customer churn rate.

Here's what it looks like when you do the math:

Customer Churn Rate = (Lost Customers ÷ Total Customers at the Start of Time Period) x 100

Customer Churn Rate = (50 ÷ 500) x 100
Customer Churn Rate = (0.10) x 100
Customer Churn Rate = 10%

Having discovered your churn rate, you might be wondering what you should do next - particularly if it's high. Check out the next section for some best practices that can help your business reduce churn.

Steps to Take After Calculating Churn Rate

Do you have a high churn rate? To decrease it, you can implement several strategies. In the long run, your company may suffer if you don't actively work to reduce churn.

1. Analyze churn to improve your customer service team

When customer churn occurs, use it as an opportunity to learn what led the customer to leave, and what you can do to prevent a similar customer from leaving you in the future.

Tracking your churn and retention rates is crucial.With HubSpot's Customer Service Metrics Calculator, you can calculate and document your retention rate over time.

By analyzing churn, you can examine the performance of individual customer support reps or managers, compare your product or service against competitors, or identify challenges in the customer experience that you want to address with your product team.

2. Revamp your onboarding plan for new customers

A robust onboarding process can prevent customer churn from the moment someone becomes a customer. Ensure that new customers receive a welcome email and offer a dedicated 1:1 and online onboarding process. To teach customers how to get the most value out of your product or service, you can create educational content on your blog, social media, and video channels.

3. Invest in more training for support and sales reps

To prevent customers from feeling swindled, your sales reps should sell the true value of your product or service. To ensure customer satisfaction, customer support employees should be equipped to handle any issue that comes their way. Churn rates can be drastically reduced by investing in processes and resources for these two departments.

4. Ask for feedback at key moments — and respond promptly

Ask for customer feedback at key points throughout the customer experience. Customers who don't log into your tool every 15 days are more likely to churn, so ask them for feedback around day 10 and re-engage them.

When they reach a milestone using your product or service, ask them for feedback. To strengthen the relationship, identify the touchpoints that make or break a happy customer and ask for feedback at those points.

Customer feedback can often take the form of negative customer reviews, in which case you should respond as quickly and appropriately as possible.

5. Communicate proactively with customers

Communicate proactively with your customers so they see you as a trusted partner. Reach out periodically with content they'll find interesting or helpful, engage with them on social media, and let them know if there are any issues or outages on the product side.

6. Offer exclusive perks to existing customers

Your current customers can benefit from perks to prevent further churn. Retail businesses would benefit more from a rewards program. A personal visit to their office or a coffee chat can instead be a more personalized touch-point every now and then.

Your CEO can also personally check in with existing customers if your business is small. It is also a great opportunity to get feedback. If the CEO asks if the customer has any comments, the customer may be more likely to respond to the survey.

7. Leverage feedback from free trial customers

Churn occurs when you lose revenue after a customer leaves your business. If someone doesn't buy your product after a free trial, that can be considered churn.

Survey those who did not purchase your product after a free trial. If a customer has already left your business, they are unlikely to answer many questions about your product. An individual who took a free trial and did not make a purchase will receive a survey link. Their interaction with your business has also been limited, so they're more likely to be honest.

You can learn what makes customers "churn" before they become paying subscribers by using this feedback.

Reduce churn rates by combining these tips with customer retention strategies.

What does churn rate look like in real life, for real companies? Here are some well-known examples.

Churn Rate Examples

SaaS companies, especially those in the B2C space, publish churn rates to show how well they retain customers. These examples can help you understand your own churn rate - what it should look like for your business and where some famous companies fall on the spectrum.

Netflix: 3.3% Monthly Churn Rate

The Netflix churn rate is one of the lowest in the video streaming industry at 3.5%. Just over 96% of Netflix's customers choose to stay with the company, indicating a low monthly churn rate. The company may have a well-established brand voice and an extensive catalog of shows.

Disney+: 3.7% Monthly Churn Rate

In order to distribute its shows online, Disney has always avoided joining other streaming services. As of March 2023, Disney+'s churn rate is 5%. The Disney Bundle, which includes Disney+, Hulu, and ESPN+, has even lower churn rates at just 2%.

Spotify: 3.9% Monthly Churn Rate

Spotify is a popular music streaming service known for personalized recommendations and a wide selection of music. According to CFO Paul Vogel, the company had a 3.9% churn rate at the end of 2021.

Hulu: 5.2% Monthly Churn Rate

Netflix's main competitor is Hulu. Known for its exclusive TV shows, it holds 11% of the video streaming market and churns at a rate of 4.7%.

Peloton: 1.41% Monthly Churn Rate

Peloton has a monthly churn rate of 1.1%. Being the first in-home cycling fitness subscription service, the company may have a high retention rate. Due to its uniqueness, its subscriber base has been cemented.

Adobe: 10% Yearly Churn Rate

Adobe has a customer retention rate of over 90%, according to Rob Giglio, former Vice President of Adobe's Digital Media. Meaning Adobe has less than 10% yearly churn rate.

Apple TV+: 15.6% Monthly Churn Rate

The monthly churn rate for Apple TV+ is 15.6%. Several outlets have reported that it's as high as 20%. A tech journalist called it the "most unloved" of Apple's platforms. According to another, its catalog is "tiny" and its content is mostly non-original. Additionally, many Apple users were on a free trial and Apple had been extending promotional periods since it launched, which may be the reason why its churn rate is higher compared to its competitors.

It may be difficult to determine what a good churn rate looks like with all these examples. Let's look at what to look for next.

What is a good churn rate?

For B2C SaaS businesses that offer self-serve solutions, a good churn rate is between 2% and 8%. It can have a significant impact on your Monthly Recurring Revenue (MRR), so the lower the better. Churn rates should be below 2% for B2B SaaS businesses with high average contract values (greater than $1,000 per month).

What is annual churn rate?

Churn rate refers to the percentage of customers who leave over the course of a year. An annual churn rate is calculated by comparing the number of customers at the beginning of the year to the number at the end.

Take the difference between those two numbers and subtract it. Divide that by the number of customers you had at the beginning of the year, and multiply by 100.

Suppose, for instance, you had 1,000 customers at the beginning and 800 at the end of the year.

(1,000 - 800) ÷ 1,000 x 100 = annual churn rate

(200) ÷ 1,000 x 100 = 20

The annual churn rate would be 20%.

What is monthly churn rate?

A monthly churn rate is the percentage of customers who leave a company each month. The churn rate is calculated by dividing the number of customers you lost over the month by the number you had at the beginning of the month. The result should be multiplied by 100.

Here's an example using real numbers. As of the beginning of the month, we will lose 200 customers with 1,200 customers.

(200 ÷ 1,200) x 100 = monthly churn rate

0.16 x 100 = 16

The monthly churn rate is 16%.

What is revenue churn rate?

The revenue churn rate measures how much revenue a business has lost due to customer churn.

Keep an eye on your revenue churn rate because it directly impacts your financial health.Long-term financial stability and profitability can be negatively affected if your company loses a significant portion of revenue due to customer churn or service downgrades.

In addition, revenue churn rate provides insight into your customers' long-term value. Your revenue churn rate may indicate that your customers aren't finding enough value in your product or service, or that your retention efforts need to be improved.

How to Calculate Revenue Churn Rate

To calculate revenue churn rate, you must know the revenue lost due to customer churn and the total revenue generated by your business. Subtract the revenue lost due to customer churn from the total revenue generated. To get a percentage, multiply that number by 100. The formula is as follows:

Revenue churn rate = (Revenue lost due to customer churn / Total revenue generated) x 100

Suppose your company generates $1 million in revenue in a month and loses $100,000 to customer churn during that month. The revenue churn rate would be calculated as follows:

Revenue Churn Rate = (100,000 ÷ 1,000,000) x 100

Revenue Churn Rate = (0.10) x 100

Revenue Churn Rate = 10%

Customer Churn Rate vs Revenue Churn Rate

Churn rate measures the number of customers who have stopped using your product or service, while revenue churn rate measures revenue lost due to customer churn.

It is imperative to differentiate customer churn rate from revenue churn rate since their results can mean very different things, especially for SaaS companies with multiple product tiers.

If you notice a high customer churn rate, but a low revenue churn rate, it may indicate that customers are downsizing rather than leaving entirely. Alternatively, a low customer churn rate may indicate that the business is losing its largest customers if the revenue churn rate is high.

In order to improve customer retention rates and reduce churn, your business must understand both metrics.

How can I track churn?

In order to track churn over time, a variety of methods can be used. A spreadsheet can be used to keep track of your findings and visualize them using the spreadsheet's built-in data visualization tool. You can also use a dedicated reporting dashboard software such as HubSpot's to automatically calculate and track churn.

What is the difference between attrition and churn?

A customer's attrition is the same as their churn. It's also referred to as customer turnover and customer defection.

The terms vary, but all refer to churn and can be interchanged.

Calculate Churn Rate to Reduce Customer Turnover

Calculating churn rate may seem like a tedious task, but tracking it is essential to understanding what may be going wrong on a customer service level. Analyze customer churn over a year or a month, improve your customer service systems, and invest in your customer service reps, and watch your churn rate drop.