Churn Rate: How to Define and Calculate Customer Churn

Churn rate, also known as the rate of attrition, is the percentage of users who stop using an app within a given period. For an app to grow, the number of ... Subscribetoourblog.PleaseenteravalidworkemailYes,I'dliketoreceivethelatestnewsandothercommunicationsfromCleverTap.Youcanunsubscribeanytime.Formoredetails,gotothePrivacyPolicy.Bysubmittingthisform,youagreetoCleverTap'sPrivacyPolicySubscribeThankyouforsubscribingtotheCleverTapBlog!Soonyouwillstartreceivingourlatestcontentdirectlytoyourinbox.➤ChurnRate:HowtoDefineandCalculateCustomerChurnEmilyBonnieWanttosavethisarticleforlater?DownloadasPDF134.42kviews.13minread134.42kviews.13minreadFacebookTwitterLinkedinMailChurnrateisatoughrealizationforanybusiness.Getreadyforsomesoberingstats:In2020,theaveragemobileapplost89%ofitsDAUswithinthefirst7daysafterinstall.Within30days,thatnumberjumpstonearly95%.*Foryourapptosucceed,youcan’tletthesestatsbeyourreality.It’seasytolookatyourapp’sgrowthmetricsandseewhatyouwanttosee.Amilliondownloads?Woohoo! Butdownloadsandinstallsdon’tfuelyourbusiness. Thosedownloadsmayboostyouracquisitionnumbers,butwiththeseappchurnratesyoucan’tcallthatawin.2021globalaverageCostPerInstallis$2.44acrossdevicesandplatforms.*Yousimplycan’taffordtolosehard-wonusersyou’veinvestedtime,energy,andmoneyinacquiring.Reducingyourchurnrateneedstobeyour#1priority.Andyoucan’treduceitwithoutfirstmeasuringit.Bytheendofthispost,you’llknowhowtocalculatechurnandunderstandkeyappchurnratebenchmarks.Andyou’llhavesomepracticalstrategiestoreduceuninstallsforyourmobileapp.Here’swhatwe’llcover:ChurnRateDefinedWhyChurnMattersWhatCausesChurnChurnRateBenchmarksHowtoCalculateChurnRateUsingCohortAnalysistoReduceChurnOtherTacticstoDecreaseAppChurnWhatisAppChurnRate?Churnrate,alsoknownastherateofattrition,isthepercentageofuserswhostopusinganappwithinagivenperiod.Foranapptogrow,thenumberofretainedusersmustbehigherthanthenumberofuserswholeave.ChurnRateExampleSayyoustartJanuarywith600users,andattheendofthemonth,youhave400users.Here’showyouwouldcalculateyourappchurnrate:(600-400)/600=33.33%churnrate.Thismayseemprettystraightforward,butchurncanbetricky.Differentfactorscaninfluencethisformula’soutcome,likehowyoudefineanactivevsinactiveuserortheperiodoftimeyou’relookingat.Butthisequationisagoodstartingpointtogetabaselineforyourapp.WhyChurnRateMattersWhyshouldyoucareaboutchurn?Becauseitsuppressesgrowth.It’stheleakybucketanalogy:asuninstalledusersdripout,you’restrugglingtorefillyourbucketbyaddingnewusers.Andthatgetsexpensivefast.Acquiringanewcustomeris5-25xmoreexpensivethanretainingoneReducingchurnbyjust5%canboostprofitabilityby75%Improvingretentionhasa2-4xgreaterimpactongrowththanacquisitionTheprobabilityofsellingtoanexistingcustomeris60-70%,butonly5-20%foraprospectButthat’snotall.Churnratealsoimpactskeybusinessmetricslikecustomerlifetimevalueandretentionrate.Together,thesenumberscanhelpyoubuildmoreaccurateforecastsforgrowth,revenue,andscalingyourbusiness.Theyshowhowyourappisperformingnowandwhattoexpectinthefuture.WhatCausesChurnEverylostuserhasadifferentreasonforuninstallingyourapp:notenoughdevicespace,gotfrustratedwithbugsoraconfusingUI,ortheyjustlostinterestinyourapp.Wesurveyed2,000appuserstofindoutthemostcommonreasonspeopleuninstallanapp:Thegoodnews?Youcandosomethingaboutit. Findoutthemainreasonsleadingyouruserstouninstallbyaskingforuserfeedbackandusingmobileanalyticsfeatureslikefunnelsandflowstounderstandhowusersnavigateyourappandwherethefrictionpointslie.Uninstalltrackingisanothermust-haveanalyticstoolthatwillhelpyouunderstandwhypeopledeleteyourapp—andevenpredictuserchurn.ChurnRateBenchmarksAllappswillexperiencesomechurn,eventhemostsuccessfulones.Soyoumaybeaskingyourself:What’sanaveragechurnrate?What’snormal?Let’sstartwithsomequickfactsandbenchmarksformobileapps:AcrossiOSandAndroid,worldwideretentionafter30daysisjust3.7%.*25%ofappsareuninstalledafterjustonelaunch.*TheaverageUSuserspends90%oftheirmobileusageintheirtopfiveapps.*WhiletotalappsessionsspikedduringtheCOVID-19pandemic,up30%betweenSeptember2019toSeptember2020,averageretentionratesdropped12%overthesametimeframe.Withsomuchcompetition,usersareburningthroughtheappsthatdon’tholdtheirattentionandmovingon.*Acrosstheboard,theaveragechurnrateforappusersisaround95.5%within90days.*Soyeah.There’salotofroomforimprovement.It’struethatretentionishardtomasterandcanbeanuphillbattle.Butit’salsotruethatevensmallgainscanhaveasignificantimpactonyoursuccess.Nowlet’szoominabitandlookataverageratesbasedonappindustry.Source:Statista,August2020Churnratevariesbyapptype,butit’sclearthatnosingleindustryhascrackedthecodewhenitcomestoretainingnewusers.Ratesarehighacrosstheboard.Mobileappsmustgetbetteratattractingtherightuserstotheirapps,providingvaluetonewlyacquiredusersearlyandoften,anddeliveringamemorableexperiencethatkeepsuserscomingbackoverthelongterm.Withthesebenchmarksinmind,it’stimetotakeahardlookatyourapp.Steponeistocalculateyourbaselinechurnrate,soyouknowwhereyoustand.HowtoCalculateChurnRateYoucancalculatechurnafewdifferentways,dependingonwhatyouneedtoknow.Insomecases,youmaywanttofindyourmonthlyratestogetacloserlookatmonthlygrowthandretention.Othertimes,youmaywanttocalculateyourannualratestoseehowgrowthisevolvingyearoveryear.Let’slookatacoupleofmonthlyandannualcalculationsinaction.MonthlyChurnRateCalculationHere’saMonthlyChurnRateExample:Usersatstartofmonth:2,000Newusersaddedthatmonth:400Userslostattheendofmonth:366Monthlychurnrate:366/2,400=15.2%AnnualChurnRateCalculationHere’sanAnnualChurnRateExample:Usersatstartofyear:50,501Newusersaddedduringyear:16,765Userslostattheendofyear:27,890Annualchurnrate:27,890/67,266=41.5%Thesetwocalculationsareagoodstartingpointforsomeentry-levelfigures.Or,ifyouwanttoskipthemath,youcanfilloutyourowncustomerchurnanalysisExcelspreadsheetandourfreetemplatewillcalculateyourchurnandretentionratesforyou.FreeTemplate:ChurnAnalysisExcelWorksheetProbabilityChurnRateKeepinmind,though,thatrapidgrowthcanmakethesesimpleequationslessaccurate.Thisisespeciallyimportantfornewappstoremember.Inthiscase,considerusingadifferentformulalikeprobabilitycalculations.Here’sanexampleofwhenitmakessensetousetheprobabilitycalculation:Ifyourappisaddingnewusersatafastenoughpace,bothchurnandthenumberofnewuserscangoup.Ifthenumberofnewusersisincreasingmorethanyourchurnrate,theratewilldecrease.Theproblem?Thewaythecalculationissetupmeansallthosenewuserscanskewthenumbersandmakeitseemlikeyouhavealowerchurnratethanyoudo.Itmightlooklikeyou’reimprovingwheninrealityit’sgettingworse.Inthiscase,considerusingadifferentformulalikeprobabilitycalculations.StephenNobleofShopifycameupwiththissolutionforcalculatingchurnasaprobability.Eachdayauserkeepsanappisonetimewhentheydidn’tchurn.So,overthecourseoftendays,thereweretenopportunitiesforthatusertoleaveforever.Auserdayisdefinedasonedaythatauserremainedactive.Tocalculateyourprobablemonthlychurn,startwiththenumberofuserswhochurnthatmonth.Thendividebythetotalnumberofuserdaysthatmonthtogetthenumberofchurnsperuserday.Thenmultiplybythenumberofdaysinthemonthtogetyourresultingprobablemonthlychurnrate.Here’sanexampleequation:Usersatthestartofthemonth:1,000Usersattheendofthemonth:1,322Netnewusergain:322Daysinmonth:30Userdaysinmonth:(1,000x30)+(0.5x322x30)=34,830Totalchurnsinmonth:366Churnsperday:366/34,830=0.01%Monthlychurnrate:30x0.01%=0.3%Noticehowthismethodfactorsinprobabilities?Thisapproachhelpsaccountforrapidgrowththatcanskewmonthlyandannualformulas.UsingCohortAnalysistoReduceChurnOnceyou’veestablishedyourbaselinerates,youcanusecohortanalysistofindoutwheretofocusyourretentionefforts.Insteadoflookingatallyourusersasawhole,cohortanalysisbreaksthemdownintorelatedgroups.Bycomparingandtrendingcohorts,youcanuncoverthespecificreasonsusersleaveandwhichactionsdriveretention.Youmightlookat:AcquisitionChannel(Whereareyourmostsuccessfuluserscomingfrom?Search,social,paidads,referral,etc.)Action(Whatactionsdoyourmostsuccessfuluserstake?Createanaccount,createaplaylist,add5friends,etc.)Time(Howlongdoesittakeyourmostsuccessfuluserstocompletethoseactions?Anhour,aday,aweek?)Cohortdatahelpsyoudiscovertrendsandpatterns,soyoucanpinpointwhathooksnewusersandkeepsthemcomingback.Youcanstudythisvisuallyusingacohortgraphlikethis:They-axisshowsaseriesofgroupsrepresentingnewuserswhofirstdownloadedtheapponthatspecificday.Thex-axisindicatesthenumberofuserswholaunchedtheappthatsameday,onedayafter,twodaysafter,etc.Withthisgraph,youcanseeexactlywherethemostsignificantdropsinuserretentionoccur.Sohowdoescohortanalysishelpidentifycausesofchurn?Itshowsyouthemostimportantmomentsinyouruserjourney.Sayyouhaveafooddeliveryapp.Forthepastfewmonths,newusershavebeenengaged,typicallysubmittinganorderwithinthefirstthreedaysofinstallingtheapp.Butinweektwo,they’respendinglesstimeintheappandplacingfewerorders.Bytheendofthefirstmonth,they’vestoppedopeningyourappaltogether.Whatgives?Bybreakingyouruserbasedownintocohorts,youseethatmostofyourretaineduserswhoareplacingregularorderslaunchtheappbetween10and11am.Userswhodon’topentheappuntilafternooneitherclosetheappwithin90secondsorabandontheircart.98%oftheseusersbecomeinactiveorleavewithinthefirstmonth.Sowhatcanyoudotoboostengagement?Sendapersonalizedpushnotificationtotheseusersbetween10and11amremindingthemtoorderlunch,alongwithapromocode.Youcanonlyspotthosepatternsbybreakingyouruserbasedownintosmallergroups.OtherTacticstoDecreaseAppChurnNowthatyouknowafewwaystocalculateappchurnlet’slookatsomemorewaystodecreaseit.Hereareafewstrategiestogetyoustarted:Optimizeonboarding.Ifyouronboardingprocessdoesn’timmediatelyshowcaseyourapp’scorevalue,userswillchurn.Keeptheonboardingprocessfocusedonbenefits.Stripdowncomplexity,limitthenumberofsteps,andgetuserstoexperienceyourapp’sahamomentasfastaspossible.Leveragepushnotifications.Sendtriggeredpushnotificationstoauser’shomescreentoencouragerepeatvisits,engagement,andpurchases.Withapersonalizedapproach,thesenotificationscanreactivateuserswhoareatriskofchurning.Personalize.Withpersonalizedinteractionsandrelevantmessaging,usersfeellikeyou’reactuallyspeakingtothem.Youcan’ttakeaone-size-fitsallapproachtoengagementcampaigns.Takeadvantageofbehavioraldatalikesearchandpurchasehistory,devicetypeandlocation,anduserpreferencestocustomizeinteractions.Considerdeeplinking.MobileappsoperateonURIsinsteadofURLs.Thatmeansdeeplinks(ordirectlinks)cantakeusersrighttoaparticularscreeninsideyourapp.Theselinkscanlaunchanappfromexactlywhereauserleftoff,ortakethemtoaspecificproductpage.It’sasimplewaytomajorlyenhancetheuserexperience.Takeadvantageofin-appmessages.sein-appmessagingtowelcomenewuserslaunchingyourappforthefirsttimeandhelpthemdiscovernewfeatures.Ordisplayapersonalizedpromowhentheyviewaparticularproduct.
InfographicbyCleverTapASmarterWaytoReduceChurnCanyoufixahighchurnrate?Absolutely.Butonlywithastrategybasedontherightdata.Byusingdatatounderstandwhyusersleave,youcanoptimizeyourapp’suserexperienceandgetmoreuserstocountyourappintheirlistoffavorites.Seehowtoday’stopbrandsuseCleverTaptodrivelong-termgrowthandretentionScheduleaDemoNow! LastupdatedonJuly6,2022PopularTagscohortanalysisUserRetentionUserChurnBehavioralCohortsRelatedPostsDataScienceStudy:TheUntappedMobileOpportunityinRuralIndiaLionelValdellonMarch14,2022DataScienceDataIntegrity:WhyIt’sCrucialtoUnderstandingUserBehaviorSiddharthNovember12,2020DataScienceIsThereaGoldenFrequencyCapNumberofMessages?JacobJosephDecember6,2019SendtomyinboxPleaseenteryourworkemailYes,I'dliketoreceivethelatestnewsandothercommunicationsfromCleverTap.Youcanunsubscribeanytime.Formoredetails,gotothePrivacyPolicy.Bysubmittingthisform,youagreetoCleverTap'sPrivacyPolicyDownloadforFreeYou'reallset!Pleasecheckyourinbox,we'vejustsentyouthePDF.Incaseyoudon’tgetitinyourinboxinthenext5minutes,checkyour‘Promotions’folder.