How to calculate churn?
Churn can be indicated as a ratio, a revenue figure and also as a number indicating how many customers in total have stopped paying for your product/service.
A basic formula for measuring churn is
Churn Rate = (Number of cancellations in a period / Total number of subscriptions in that period) X 100
Churn can also be demonstrated in other ways based on how it makes sense for a business. Here are a few:
- Customer Churn : off-the-shelf software solution that can’t be altered
- Customer Churn Rate : Percentage of customers lost
- MRR Churn : Value of MRR lost due to churn
- MRR Churn Rate : Percentage of MRR lost due to churn
How can you reduce churn?
Churn rate is one of the fundamental metrics that indicate a company’s business health. When you notice your subscription churn going up, the first thing to do is to understand why.
Start with analyzing how long these customers stay with you before canceling their subscription.
If customers churn very early in their subscription cycle, there might be a gap between how you position the product and customers’ perceived value of your product. If it arises in the later part of their lifecycle, it might mean your product doesn't scale with your customers as well as they expected.
There are also other useful lenses to look at churn through. You could break down and understand churn patterns by pricing plans - is there a specific product plan that you offer that sees a higher churn? How much of your customer churn happens from a freemium plan versus that from paid plans?