Churn rate is arguably one of the most underrated metrics in all of business.
Despite how easy the formula is for calculating it, your customer churn rate has huge potential for quickly showing you where there’s room for improvement with your business.
And those improvements could be worth significant amounts of money for your company and have positive ripple effects throughout the rest of your organization, too.
That’s why we’re not just going to define what churn is and how to calculate it but also what you can do to improve this number ASAP.
Churn rate is the rate at which customers or subscribers cancel or fail to renew their subscriptions or recurring services over a given period, such as a month or year. You may also hear churn rate referred to as customer attrition rate.
However, in recent years, eCommerce companies that don’t necessarily offer subscription services have looked into how often customers are leaving them for other companies – essentially, churning in a different sense.
And even if you are happy with your company’s current monthly revenue, a high churn rate can still be a huge problem. For example, it may mean that you’ll struggle to recover your average customer acquisition cost (CAC) over time (even though it doesn’t look that way at the moment).
At the very least, your customer lifetime value (CLV) is going to suffer if people are regularly leaving you for competitors.
To calculate your customer churn rate, you can use a CRM system, which may include a built-in subscriber count that indicates how many users you had at the beginning and end of a particular time period.
Or you can follow this very simple formula to quickly identify how many customers you are losing during a specific timeframe.
To calculate the churn rate, use the following simple formula:
For instance, if your eCommerce company had 200 customers at the start of last month but lost 20 by the end of it, you’d divide 20 by 200 to get .1 and then multiply that number 100.
The result would be your churn rate for that month: 10%.
Pretty simple, right?
This equation can be applied to any duration of time. So, you can check your churn rate for a week, a month, a quarter, a year, etc.
Which brings us to our next point: how much time should you use to calculate churn rate?
This will largely depend on your company’s unique business model.
Most business owners wouldn’t find much value in looking at their customer churn from week-to-week but checking every month would make a lot of sense. Checking over the course of an entire year would, too.
If your business is even remotely seasonal, you’ll want to consider that when calculating churn. It will probably make a lot more sense to look at churn rate broken down by quarter.
Some business owners will also look at churn when running new promotions. The expectation is that these promotions will drive more business, which you’ll be able to measure by simply checking your revenue numbers.
However, if you don’t keep your eye on churn rate, too, you could find out later on that your promotion actually drove away some customers or subscribers unexpectedly.
There are a lot of differences between B2B and B2C companies and their approaches to dealing with customer churn is no exception. The simple reason is because they have distinct target audiences that tend to behave very differently.
For example, B2B SaaS businesses have a very specialized target audiences with equally specific needs, which tend to lead to a much lower churn rate than most B2C companies that face much more competition.
B2B companies also tend to have higher prices, specialized accounting departments or services, and annual subscription models that help them manage customer churn better, too.
On the other hand, B2C companies have a broader audience with diverse needs, making it challenging to grab and maintain each customer's attention. These are just a few other reasons why B2C companies tend to experience higher churn rates than B2B businesses.
It’s important to keep this in mind if you’re trying to compare your churn rate to that of other businesses. Even in your industry, it’s vital that you’re only comparing yours to similar businesses (either B2B or B2C).
A negative churn rate is possible, too.
This is what happens when new revenue from new customers exceeds any revenue you lost from customers who’ve decided to take their business elsewhere.
In other words, your company lost customers or clients but didn’t actually lose any revenue in the process.
Negative churn rates can also occur because you’re simply making more from your current customers despite losing some and not acquiring any more. Maybe you lost 7 of your 1,000 clients, but 5 of the ones that remained have decided to pay for upgrades, add-ons, extras, service options, etc.
As we already mentioned, there are a number of different ways you can track churn over time, whether that’s monthly, quarterly, annually, etc.
One option is to maintain a spreadsheet to record and track your company’s churn rate data. Excel, Google Sheets, and practically every other spreadsheet tool comes with built-in features for visualizing your churn rate broken down by any time period you want.
Of course, there are plenty of other tools out there for tracking your churn rate, too. For example, HubSpot’s dashboard can be used to automate calculating and tracking churn.
Obviously, the ideal churn rate for your business would be absolutely zero.
Unfortunately, this usually isn’t possible. Customers churn for all sorts of different reasons. It’s totally possible that one may quit doing business with your company for reasons that have nothing to do with your services or products.
This is one more reason it’s so important to only compare your customer churn rate to those of similar businesses in your own industry.
So, let’s list churn rate broken down by some of the most popular industries.
This data comes from CustomerGauge’s “The State of B2B Account Experience” report:
As you can see, churn rate can vary greatly, from 11% all the way up to 56%.’
And again, even inside of each industry, you have to remember that numbers may differ between B2B and B2C companies.
When a company has a high churn rate, it means that a significant number of customers have stopped giving it their business.
This doesn’t necessarily mean that the business isn’t still bringing in new customers, though. That’s important to understand.
Because if you’re bringing in a substantial number of customers, but your churn rate still remains high, it probably means that while your marketing is great, you’re not delivering to the degree your customers expect.
We’ll delve into common reasons for high churn rates a bit more in just a moment, but other examples include:
Whatever the case, it’s important that you not simply accept high churn rates. Always look to improve this important number.
We already touched on this bit, but it’s important to understand that a customer may, technically, “churn” even though they had no choice in the matter.
This is often referred to as “involuntary churn.”
For example, if you run a subscription service and a customer’s card is declined, they’ll show up as churn in your reports.
But maybe it’s just that their credit card expired. Maybe their processor declined the charge for some reason. It could even be that your own payment system is responsible for erroneously rejecting the card.
Whether you call it involuntary churn or passive churn, understanding this concept is key to recovering these accounts and regaining your ongoing income from these customers.
While tracking your customer churn rate is important, there are some significant limitations that you need to know about, too.
One limitation of using the churn rate as a metric is that the number you end up with doesn’t identify the types of customers that are churning.
For example, customer attrition is typically highest among the customers you most recently acquired. So, if your company recently ran a promotional campaign that attracted a large influx of new customers looking to enjoy a free trial, you’ll probably see your churn rate go up in the near future, too. If nothing else, many customers will simply cancel their accounts once the free trial is over.
That might lead to a high churn rate, but it’s hardly the same as customers who leave because they’re switching to a competitor who they think offers a better solution.
Similarly, losing new customers versus long-term ones will usually have a much different impact on your business.
New customers are often in the trial phase and are more likely to churn, while long-term customers are typically more loyal and satisfied with the product. That’s why a high churn rate in a given period may reflect a high growth rate in the previous period rather than the quality of the business.
Furthermore, customer churn rates are often provided without any reference to an industry baseline. Below, we’ll provide you with some examples of churn rates for popular companies, but you should look into research for these numbers relative to your industry before attempting to act on this data.
Just like with other important metrics (i.e., conversion rate, bounce rate, etc.), acceptable amounts can vary greatly by industry.
The age of your business is vital to consider, too.
Newer companies tend to have high acquisition rates and higher churn rates as they work to gain a foothold in their particular markets. It wouldn’t be helpful to compare the churn rate of one of these newer businesses to a household name that’s been operating for decades and has the kind of track record that comes with that much experience.
Okay, now that you know how to calculate your customer churn rate, what’s the next step?
As I just touched on, knowing your rate is only half the battle.
If you don’t understand what to do about this number, why bother calculating it in the first place?
Instances of customer churn should be used to analyze the performance of your customer service team.
This may include looking at individual customer support representatives or managers, comparing your product or service to competitors, and identifying challenges in the customer experience your site provides.
The easiest way to do this is by taking a sample of your customer churn and then cross-referencing it with people who contacted your customer service team.
By doing this, you’ll get a sense for how many customers bring problems to your customer service team but still decide to quit doing business with your company.
Are there opportunities there to better serve your customers so this churn doesn’t occur?
A comprehensive, effective, and user-friendly onboarding process is essential for improving customer satisfaction from the moment they start working with your company.
There are countless ways to do this.
Sending an informative welcome email to new customers is a perfect example.
But there are plenty of other options, too.
For example, you could provide dedicated one-on-one onboarding services to ensure it’s as easy as possible for new customers to use your business.
Another powerful option is to create educational content on various platforms (e.g., blogs, social media, YouTube videos) to guide onboarding and demonstrate how to achieve the best results from your product or service.
Sales representatives should focus on selling the genuine value of your company’s product or service. Among other things, this will help to ensure shoppers don't feel deceived once they sign up to become a customer.
As we brought up earlier, one common reason for churn rate is that customers feel as though they bought one thing but ended up with something completely different.
Your customer support employees should also be adequately equipped to handle any problem that arises in a way that will actually boost customer satisfaction. By investing in effective processes and resources for both departments, you can significantly reduce your churn rate.
Again, this is something you can do by cross-referencing customers who left your business after contacting customer service with whom they spoke to and/or what their problem was. The same goes for auditing your sales team’s performance. Look for indicators of where these teams may be driving customers away.
Don’t just wait for customers to contact you, though.
It is crucial to consistently solicit customer feedback at critical junctures throughout your customer experience.
For example, if you know that customers are likely to churn if they don't use your tool every 15 days, ask for feedback around day 10 and attempt to reengage them.
Another good time to request this kind of feedback is when a customer reaches a significant milestone using your product or service. You can find out how they felt about your product, tool, or service. They could teach you all kinds of things, like:
Unfortunately, sometimes, customer feedback takes the form of negative reviews.
When that happens, it’s important to respond promptly and appropriately to them. Doing so may prompt the person to remove or modify the review, which can be a huge help for your online reputation.
And, once again, you can take this opportunity to figure out ways your customer service team can avoid these situations in the future and reduce further churn in the process.
Churn only occurs once you’ve lost revenue after a customer stops doing business with you.
However, it’s still worth considering “churn” from shoppers who signed up for a free trial of your product or service but never actually become paying customers.
Consider surveying these should-be customers for feedback.
Although it’s a good idea to speak with dissatisfied customers who have decided to quit using your product or service, those people may also not want to spend any more time with your business.
On the other hand, those who tried the product/service but decided not to buy are more likely to give you some free feedback, especially if there’s a chance you may implement their advice to create something more akin to what they wanted in the first place.
Many companies have flattened their churn rates by consistently providing their customers with ways to get better results.
This doesn’t just mean improving your overall product or service.
That will definitely be helpful, but a more cost-effective approach is regular emails, blog posts, and case studies that your customers come to rely on as genuine opportunities to improve the results they get from using your product/service.
Engaging with your market on social media can be another example of this, too.
Whatever the case, if you get customers to view you as a partner beyond simply what your product or service provides, they’ll be less likely to churn.
Finally, this last option for reducing customer churn is arguably the most expensive but also the most effective. Simply offering your existing customers extra perks – or even a reduced price – to continue spending money with you is about as much of a no-brainer as it gets.
Depending on the industry you’re in, rewards programs may be a popular option, but feel free to get creative. Some businesses will offer their most valued customers one-on-one consulting or things like free shipping on larger orders.
Whatever the case, these kinds of offers will definitely cost you a bit more, but it could mean keeping those customers that spend the most with your business.
Again, it’s worth spending the time to research what the average churn rate is for your industry, so you have a valid benchmark when you’re ready to start improving your own.
However, for now, it’s still worth looking at what this number is for many popular companies.
Peloton's monthly churn rate borders on the impossible.
At just 0.8%, it’s practically nonexistent.
The company's unique offering of exercise equipment and fitness subscription services have definitely contributed to their impressively high retention rate.
As a pioneer in the in-home cycling fitness subscription industry,
Peloton wasn’t just a pioneer in the in-home cycling fitness subscription industry, though. They also leveraged unique content, personalization, and exceptionally good customer service to keep their customers happy.
Though they currently face no lack of competition, Netflix has been able to maintain the lowest churn rates in the entire video streaming industry – beating out even Disney.
Only 3.3% of Netflix users churn each month.
That puts Netflix’s retention rate at an incredible 96.7.%
While Netflix definitely has a huge library of movies, shows, and award-winning original series, the streaming giant has also become famous for finding data-backed ways to keep customers happy.
Speaking of Disney, their streaming service has gained a lot of ground in just a few years and may soon see their churn rate drop below Netflix.
The release of Disney+ in 2019 was met with high user demand, which hasn’t abated much since then. With a churn rate of only 3.7% - and some of the best branding of any company in the world – it’s unlikely that they’ll struggle for business anytime soon.
Well-known music streaming service, Spotify, offers personalized recommendations and a vast music library. In recent years, the company made headlines by acquiring the rights to some of the world’s most popular podcasts.
Being the exclusive service for listening to shows like Call Her Daddy and The Joe Rogan Experience has definitely helped bring on new customers, but these acquisitions have also ensured a low churn rate of only 3.9%.
Hulu is yet another streaming service that has managed an extremely impressive churn rate. Like Netflix, it’s also won a lot of attention and praise for original movies, documentaries, and TV shows.
Although Audible has been in business since 1995, things really took off when the company partnered with Apple in 2003.
Since then, the company has basically ruled the world of audiobooks without any rivals.
They don’t just have an inventory of more than 200,000 audiobooks. The company offers many of them for free and even started creating their own original content in 2020.
All of this has helped contribute to a churn rate that’s supposed to be somewhere around 12%.
Apple TV+ has a monthly churn rate of about 13%, but some reports suggest it could be a lot higher – more in the neighborhood of 20%.
Even though Apple is a massive name, its streaming service only started back in 2019. So, while it’s growing, the service still only has a limited catalog of original content. Furthermore, while many users start on a free trial, Apple has become notorious for extending these promotions again and again. When they finally come to an end, a lot of customers balk at the idea of finally paying for Apple+ and, thus, churn.
Nonetheless, even if it’s as high as 20%, that’s still MUCH better than the average for streaming services, which is 37%.
Finally, let’s answer a few common questions about churn rate to help you better understand this essential metric.
We talked about this at the beginning of this article, but customer attrition rate and churn rate are the same thing. Other common terms are “customer turnover rate” and “customer defection rate.”
So, using them interchangeably is fine.
Okay, churn rate and growth rate are similar, but these are not terms you can use interchangeably.
Growth rate is the opposite of churn rate. So, whereas churn rate looks at lost clients, growth rate tracks the number of new customers acquired.
If your company’s growth rate exceeds the churn rate, it has experienced growth during that time period.
On the other hand, if the churn rate surpasses the growth rate, your company has experienced a loss in its customer base.
To determine whether a company is experiencing growth or loss in a specific time period, compare the number of new subscribers to the number of lost subscribers.
In this way, it really isn’t that different from tracking churn rate. Just compare how many customers or subscribers you have at the end of a time period compared to how many you had at the beginning. If the percentage is positive, you’ve experienced growth.
Obviously, if you’ve lost customers, you’ve seen churn.
Lastly, churn rate and retention rate are closely related, too.
While both retention and churn rates are key metrics in measuring customer loyalty, they represent different aspects of the customer experience.
Retention rate refers to the frequency with which customers continue to do business with a company.
Business owners should aim to reduce churn and increase retention as part of their customer relationship management strategies.
As we mentioned at the very beginning, eCommerce business owners have no lack of metrics they can measure if they so desire.
And if your company offers a subscription, there are actually even more.
Still, churn rate needs to be among them. The lower you can get your churn rate, the higher your ROI would be. Plus, as you’ve now seen, there are plenty of ways you can keep your customer churn low without spending a ton of time or money in the process.