Churn Rate: Definition, Types and Calculations

Table of contents

What Is Customer Churn?
What Is Customer Churn Rate?
Importance of Understanding and Calculating Churn Rate
How to Calculate Churn Rate?
Difference Between Customer Churn Rate and Revenue Churn Rate
Practical Tips to Reduce Churn Rate
Churn Rate Examples
What Is A Normal Churn Rate?
Tools for Calculating and Monitoring Churn Rate
Reduce Customer Churn Rate with Goodmeetings
FAQs

Ever wondered how well your business is keeping its customers?

Understanding churn rate can give you the answer!

Churn rate measures the percentage of customers who leave your business over a specific period. For instance, a 5% churn rate means that 5 out of every 100 customers leave each month.

This metric is scary but it is very important because –

A high churn rate can signal problems
While a low rate indicates satisfied customers

By knowing how to calculate and interpret churn rate, you can take steps to improve customer retention and boost your business’s success.

And in this guide – we will show you how to calculate a churn rate without using a churn rate calculator.

What Is Customer Churn?

Source: Canva

Before we start with churn rate – you need to understand what customer churn actually means.

Customer churn is when customers stop doing business with a company. It’s a key measure for businesses, showing how many customers leave over a specific time.

What Is Customer Churn Rate?

Source: Canva

Let’s start with the definition of customer churn rate.

“The churn rate – also known as the rate of attrition or customer churn – is the rate at which customers stop doing business with an entity.”

So, what does it mean?

Customer churn rate is a measure of how many customers leave a company over a certain period. It’s expressed as a percentage of the total number of customers.

For instance – If you start with 200 customers and 20 leave in a month – your churn rate is 10%.

This rate helps you understand how well you are retaining customers. By monitoring churn rate – you can find ways to improve customer satisfaction and reduce the number of customers who leave.

Note:

High churn rates can be a red flag – indicating issues like poor service or better offers from competitors.

Importance of Understanding and Calculating Churn Rate

Understanding and calculating churn rate is important for businesses to keep track of how well they retain their customers. Here’s why it matters:

Identifies Problems

A high churn rate often indicates problems – such as poor customer service, product issues, or competition. By regularly calculating churn rate, businesses can spot trends and take action to address these issues.

Measures Customer Satisfaction

Churn rate is a direct reflection of how satisfied customers are with your product or service. By understanding your churn rate, you can assess if changes you’ve made are improving customer satisfaction or if further adjustments are needed.

Helps Forecast Revenue

Knowing your churn rate helps in predicting future revenue. If you have a high churn rate, it can be challenging to grow your customer base. By keeping churn rate low, you can maintain a steady revenue stream and plan for growth.

Supports Customer Retention Strategies

By analyzing churn rate, businesses can develop targeted strategies to retain customers. For instance, if churn is high in a specific customer segment, you can create personalized offers or improve services for that group.

Improves Business Strategy

Regular monitoring of churn rate provides valuable insights into the effectiveness of your business strategies. It helps in refining marketing, sales, and service strategies to better meet customer needs and expectations.

How to Calculate Churn Rate?

Source: Canva

Calculating churn rate helps you understand how well you are retaining customers or revenue. Here’s how to calculate churn rate using different formulas:

1. Customer Churn Rate

This is the most common type and measures the percentage of customers who leave a company over a set period. It helps you understand how well you are keeping your customers.

Formula: (Number of Lost Customers / Total Number of Customers at the Start) × 100

Steps to calculate

Count how many customers you lost during a period.
Find the total number of customers at the start of the period.
Divide the number of lost customers by the total number of customers.
Multiply by 100 to get the percentage.

Example

You start with 800 customers and 40 leave by the end of the month.

40 / 800 = 0.05

0.05 × 100 = 5%

Customer Churn Rate: 5%

2. Revenue Churn Rate

This type focuses on the amount of revenue lost due to customer churn. If a company loses high-value customers who contribute significantly to revenue – the revenue churn rate can be high – even if the number of customers leaving is low.

Formula: (Revenue Lost from Churned Customers / Total Revenue at the Start) × 100

Steps to calculate

Calculate the revenue lost from customers who left.
Find the total revenue at the start of the period.
Divide the lost revenue by the total revenue.
Multiply by 100 to get the percentage.

Example

You lost $10,000 in revenue and your total revenue was $100,000.

10,000 / 100,000 = 0.10

0.10 × 100 = 10%

Revenue Churn Rate: 10%

3. Gross Churn Rate

Gross churn rate looks at the total number of customers who leave – without considering any new customers acquired during the same period. It helps to gauge how well a company is retaining existing customers, irrespective of growth.

Formula: (Number of Customers Lost / Total Number of Customers at the Start) × 100

Steps to calculate

Count the total customers who left during the period.
Find the total number of customers at the start.
Divide the number of lost customers by the starting number.
Multiply by 100 to get the percentage.

Example

You started with 1,000 customers and 60 left.

60 / 1,000 = 0.06

0.06 × 100 = 6%

Gross Churn Rate: 6%

4. Net Churn Rate

Net churn rate accounts for both the customers who leave and the new ones who join. It’s a more comprehensive measure as it shows the overall effect of churn and new customer growth.

Formula: (Number of Customers Lost – Number of New Customers) / Total Number of Customers at the Start × 100

Steps to calculate

Count how many customers you lost.
Count how many new customers you gained.
Subtract the number of new customers from lost customers.
Divide by the total number of customers at the start.
Multiply by 100 to get the percentage.

Example

You lost 50 customers but gained 20 new ones, and you started with 1,000 customers.

(50 – 20) / 1,000 = 0.03

0.03 × 100 = 3%

Net Churn Rate: 3%

5. Gross Revenue Churn Rate

This measures the percentage of revenue lost from existing customers, not considering any revenue gained from new customers.

Formula: (Revenue Lost from Churned Customers / Total Revenue at the Start) × 100

Steps to calculate

Calculate the revenue lost from churned customers.
Find the total revenue at the start.
Divide the lost revenue by the starting revenue.
Multiply by 100 to get the percentage.

Example

You lost $8,000 in revenue and your total revenue was $80,000.

8,000 / 80,000 = 0.10

0.10 × 100 = 10%

Gross Revenue Churn Rate: 10%

6. Adjusted Churn Rate

This type adjusts the churn rate by accounting for recovered customers or other factors that might affect the raw churn rate. It gives you a more accurate picture of churn impact.

Formula: (Number of Customers Lost – Number of Recovered Customers) / Total Number of Customers at the Start × 100

Steps to calculate

Count the lost customers.
Count how many of those customers were recovered.
Subtract recovered customers from lost customers.
Divide by the total number of customers at the start.
Multiply by 100 to get the percentage.

Example

You lost 30 customers but recovered 10, and you had 900 customers at the start.

(30 – 10) / 900 = 0.0222

0.0222 × 100 = 2.22%

Adjusted Churn Rate: 2.22%

7. Seasonal Churn Rate

Seasonal churn rate looks at churn during a specific period, such as a season or a quarter. This helps understand how customer behavior changes during different times of the year.

Formula: (Number of Customers Lost During a Season / Average Number of Customers During that Season) × 100

Steps to calculate

Count how many customers were lost during a specific season.
Find the average number of customers during that season.
Divide the number of lost customers by the average number.
Multiply by 100 to get the percentage.

Example

You lost 25 customers during the summer and had an average of 500 customers.

25 / 500 = 0.05

0.05 × 100 = 5%

Seasonal Churn Rate: 5%

Difference Between Customer Churn Rate and Revenue Churn Rate

Customer Churn Rate and Revenue Churn Rate are two important metrics that measure customer loss, but they focus on different aspects:

Customer Churn Rate: This metric shows the percentage of customers who stop using a company’s service.
Revenue Churn Rate: This metric measures the percentage of revenue lost due to customers leaving.

Example:

A subscription-based company that provides software. The company has 1,000 customers and earns $100,000 in monthly revenue.

Customer Churn Rate

By the end of the month, 50 customers have canceled their subscriptions.

Source: Canva

Impact: The Company lost 5% of its customers.

Revenue Churn Rate

Out of those 50 customers, 10 were paying $1,000 per month each. The company lost $10,000 in revenue.

Source: Canva

Impact: The Company lost 10% of its revenue. Even though only 5% of customers left, the revenue churn rate is higher because the lost customers were high-value ones.

Practical Tips to Reduce Churn Rate

Here are some practical tips you can use to reduce customer churn rate and improve customer retention:

Improve Customer Service

Provide quick and helpful support to address customer issues. A good support experience can make customers feel valued and less likely to leave.

Know Your Customers

Regularly ask for feedback and understand the needs of your customers. Personalize your interactions and offerings to meet their expectations.

Offer Incentives

Provide discounts, rewards, or special offers to keep customers engaged and loyal. This could be a discount on their next purchase or a loyalty program.

Enhance Your Product or Services

Continuously improve your product or service based on customer feedback. Make sure it solves their problems and stays ahead of competitors.

Communicate Regularly

Keep in touch with your customers through newsletters, updates, and personalized messages. Regular communication helps maintain a relationship and keeps them informed.

Onboard New Customers Effectively

Ensure that new customers understand how to use your product or service. A smooth onboarding process helps them see the value right away.

Monitor and Analyze Churn

Regularly track and analyze why customers leave. Use this information to make changes and address the root causes of churn.

Create a Strong Community

Build a community around your product or service. Engage with customers through social media, forums, or events to create a sense of belonging.

Offer Flexibility

Provide flexible plans or options that suit different customer needs. For example, offer various subscription plans or payment options to cater to diverse preferences.

Act on Feedback

Take customer feedback seriously and make necessary improvements. Showing that you value their opinions can help in retaining them.

Churn Rate Examples

Many SaaS companies – share their churn rates to highlight their customer retention success. Here are some well-known churn rate examples:

Company	Churn Rate
Spotify	2%
Netflix	2%
Disney+	4.8%
Amazon Prime	4%
Hulu	5.8%
Apple TV+	8%

Spotify – 2%

Spotify, known for its huge music library and personalized playlists – has a monthly churn rate of 2% as of 2024. This low rate reflects its ability to keep users engaged and satisfied with its service.

Netflix – 2%

Netflix has one of the lowest churn rates in the streaming industry – with just a 2% monthly churn rate. This means that over 98% of its users choose to stick around each month.

Disney+ – 4.8%

Disney+ has a slightly higher churn rate at 4.8% monthly – as of 2024. This lower rate could be due to the attractive bundle offer.

Amazon Prime – 4%

Amazon Prime has a monthly churn rate of 4% – indicating that it retains over 96% of its customers each month. This strong retention rate reflects the value customers find in Amazon Prime.

Hulu – 5.8%

Hulu, a major competitor of Netflix – has a monthly churn rate of 5.8%. Despite facing tough competition – Hulu manages to retain a significant portion of its users.

Apple TV+ – 8%

Apple TV+ has a higher monthly churn rate of 8%. The higher churn rate might be due to its smaller content library and reliance on free trials.

What Is A Normal Churn Rate?

Source: Canva

A normal churn rate usually falls between 5% and 10% per year for most businesses. This means that a company might lose around 5% to 10% of its customers or subscribers each year. Staying within this range is generally considered acceptable, but aiming for a lower churn rate is better – as it shows that a company is keeping more of its customers.

What Is A Good Churn Rate?

Wondering what is a good churn rate? Well, it varies depending on the industry, but generally, the lower, the better.

1. SaaS Companies

A monthly churn rate of 3-5% is considered good.
Top-performing SaaS companies often achieve rates below 2%.

2. E-commerce

A churn rate of 5% to 7% is typical.
A rate below 5% is seen as excellent.

3. Streaming Services

A churn rate of 4% to 6% is considered healthy.
Keeping churn low ensures long-term customer retention.

Tools for Calculating and Monitoring Churn Rate

Here are some tools that can help you calculate and keep track of your churn rate:

Churn Rate Calculator

A churn rate calculator is a tool that helps you determine the percentage of customers who leave your business over a certain period. You input the number of customers at the start and end of the period, and it calculates how many have stopped using your service. You can easily find a free churn calculator online.

Churn Rate Template

A churn rate template is a pre-made spreadsheet or document that helps you track and calculate customer churn. You enter data such as the number of customers at the start and end of a period, and the template automatically calculates the churn rate for you.

Customer Analytics Software

Customer analytics software collects and analyzes data on customer behavior. It helps track churn rate by providing insights into customer interactions, trends, and patterns, allowing businesses to identify why customers leave and make improvements to retain them. Goodmeetings can help you with sales meeting analytics to understand customer behavior.

Customer Retention Software

Customer retention software focuses on keeping existing customers. It tracks churn rate by monitoring customer engagement and feedback. It helps businesses develop strategies to reduce churn by identifying at-risk customers and offering targeted solutions to retain them.

Reduce Customer Churn Rate with Goodmeetings

Source: Goodmeetings

A high churn rate can significantly harm your business by increasing customer acquisition costs and disrupting revenue stability. Goodmeetings helps tackle this issue by boosting your sales team’s efficiency.

With its AI tools, you get clear insights and transcripts from meetings, so nothing important is missed.
Automated follow-ups and easy summaries make staying on top of tasks simpler.
Sentiment analysis and coaching help your team respond better to customer needs.

Multi-language support and customizable dashboards also make it easier to connect with a global audience.

Source: Goodmeetings

These features help build stronger customer relationships and reduce churn.

The best part is you can test Goodmeetings with a free 7-day trial. You can also request a free demo to see how it works before making a decision.

Lower Churn Rate and Boost Customer Retention with Goodmeetings!

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FAQs

1. How do you calculate churn rate?

Wondering how to calculate churn rate? Simply divide the number of customers lost during a period by the total number of customers at the start, then multiply by 100.

2. What does 5% churn mean?

A 5% churn rate means that 5% of your customers leave or stop using your service over a specific period.

3. What is 5% monthly churn rate?

A 5% monthly churn rate means you lose 5% of your customers each month.

4. Are churn calculator online tools accurate?

Yes, churn calculator online tools are generally accurate if you enter correct data.

5. What is a good churn rate for small businesses?

For small businesses, a good churn rate is typically 5% or lower.

6. What is a normal churn rate for SaaS?

A normal churn rate for SaaS companies is around 5-7% per month.

Wrapping Up

Understanding churn rate is important for improving customer retention and business stability. By accurately measuring and analyzing this metric, you can take targeted actions to reduce customer loss. Use Goodmeetings alongside a churn rate calculator to enhance your insights and strategies for keeping customers loyal and boosting retention.

Ready to Reduce Your Customer Churn Rate? Use Goodmeetings Now!

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Understanding Churn Rate: Definition and Calculation Methods

What Is Customer Churn?

What Is Customer Churn Rate?

Importance of Understanding and Calculating Churn Rate