“Churn” refers to the number of customers or subscribers who stop using your service during a given time period. Your annual churn is the percentage rate at which you are losing your users. Those customers who have stop using your service have “churned.”
Measuring your churn rate is crucial to understanding your company’s growth (or decline). Even a small churn rate can have a major impact on your revenue over time. While churn is inevitable — you will lose users, just as you will gain them — it is a key figure to have in mind as you plan for your company’s expansion.
There is more than one way to measure your churn. The most straightforward way is to calculate the percentage of users lost based on the number of users you started with in a given time period. Do this by dividing the number of users you churned by the number you started with. That percentage will allow you to estimate how many users you may lose on a monthly or quarterly basis.
However, you may also calculate your churn in terms of potential revenue lost. Each time you lose a user and their subscription, you are losing a certain amount of revenue. This is called revenue churn, and it is arguably more important than user churn. This metric is important to track because it weights your user churn in a way that more accurately represents how your business is doing.
What is an acceptable churn rate?
It is natural to look for an acceptable churn rate number as a benchmark for success. But first it’s important to consider how to measure it. Keep in mind that a monthly churn rate will compound over time. A percentage that starts out small and seemingly acceptable balloons over the course of a year. As I’ve said, even a small churn rate can have huge impacts on your revenue over time. So when measuring your churn, project it over the span of a year, not just on a monthly basis.
Now that we’ve made that clear, a churn rate of about 5-7% annually is generally agreed to be acceptable and recoverable. This is a monthly churn of about .4%. However, these numbers tend to be much lower than most startups.
How to improve your churn
Churn is always inevitable, but there are ways to keep your customers engaged, which is the key to reducing your churn. We’ve put together a list of 13 practical ways to start reducing your churn today. This is absolutely key to the long term success of your company, increasing your growth and reducing your spending.