Customer Churn Rate | KPI example - Geckoboard

Customer churn rate is the percentage of customers lost during a given period of time. For SaaS or mobile apps, that means customers who cancel their ... 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Customerchurnrateisthepercentageofcustomerslostduringagivenperiodoftime.ForSaaSormobileapps,thatmeanscustomerswhocanceltheirsubscription.Forecommerce,thatmeanscustomerswhofailtomakearepeatpurchasewithinatimeframeestablishedbythebusiness,suchas90or120days. Typically,churnrateincludesonlypayingcustomers.ForSaaScompanies,thatwouldmeanexcludingtrialcustomersfromyourcalculations. Customerchurnratelooksatnumbersofcustomerslost,nottheamountofrevenuelost.TotrackrevenuelossyouwouldneedtolookatMRRchurn. Theinverseofcustomerchurniscustomerretentionrate,whichfocusesonthecustomersretainedoveragivenperiodoftime. Howtocalculatechurnrate: [(#)Totalcustomerschurnedthistimeperiod / (#)Totalcustomersatthestartofthistimeperiod] X 100 = (%)CustomerChurnRate Calculatecustomerchurnratebydividingthetotalcustomerschurnedoveraspecifiedperiod(suchas30or90days)bythetotalcustomersatthestartoftheperiod.Multiplythatby100togenerateapercentage.Thetimeframemightdependonyourindustryandthelengthofyoursalescycle,thoughmanybusinessescalculatemonthlychurnrates. Forexample,ifthetotalcustomerslostinAugustwas150,andthetotalnumberofcustomersatthestartofthemonthwas5,000,thenthecustomerchurnratewouldbe3%: [150customerschurnedinAugust / 5000customersasofAugust1st] X 100 = 3% Anotherwaytocalculatechurnrateisbycohort.Acohortisagroupofcustomerswhoallsignedonwithyourcompanyatthesametime.Trackingcohortchurnratehelpsyouseehowlongpeopleareusingyourproductbeforechurning.Monthlychurnratetellsyouhowmanycustomersyoulostinaparticularmonthbutnotwheneachonesignedonwithyourcompany. Theformulaforcalculatingchurnratebycohortisverysimilartothemonthlyversion: [(#)Totalcustomerschurnedfromcohort / (#)Totalcustomersincohortfromspecifiedtimeperiod] X 100 = (%)CustomerChurnRate Therearealsofreethird-partytoolsthatcanhelpyoucalculatechurnrate,likeHubSpot’scustomerservicemetricscalculator.Usingthesetools,youcanquicklycalculatechurnratebyplugginginyournumbers.Some,likeHubSpot’stool,helpyoucalculatemorecomplexmetrics,suchasrevenuechurn. Whytrackingcustomerchurnrateiscritical Regularlywatchingchurnratecanhelpyouquicklymakeadjustmentstoyourretentionstrategies.Highchurnmakesitdifficultforacompanytogrow.Beingproactiveaboutcustomersatisfactioncanhelpyousustainorevenbolstercompanygrowth. Monitoringchurnhelpsyoutrackhowsatisfiedcustomersarewithyourproductorservice.Ifhighnumbersofcustomersleaveaftertryingyourproduct,youmayhaveissueswithusability,customerservice,priceorproductfit.Ahighchurnrate,oronethatisgrowingmonthovermonth(MOM),indicatesthatyouneedtorevisityourcustomerretentionstrategies. Trackchurnrateonaregularbasistowatchforfluctuations.Ingeneral,yourchurnrateshouldbesteady.Dramaticchangesmayindicateaproblemoraneedforcloserinvestigationintowhycustomersareleaving. Trackingchurnratesbycohortcanofferadditionalinsightintothefactorsbehindlostcustomers.Ifyounoticedasharpriseinchurninthefirstgrouptoreceiveanewfeature,forexample,youmightwanttospecificallyaskthosecustomersabouttheirexperiencewiththefeature. WhatisagoodchurnrateforSaaSbusinesses? Averagecustomerchurnratecanvarywidelybybusinessstage(earlyversusmidversuslate).Butyoucanlookatindustryandcompanyaveragestogetabasisforcomparison. Baremetricsfoundanaveragechurnrateof7.5%acrosstheirSaaScustomers.Ifyoulookatadetailedviewbycustomer,you’llseethattheratevarieswidelyacrossdifferentpricepointsandcompanyrevenuelevels. Baremetricsdetailedcompanyview Inadditiontoindustryaverages,lookatchurnratesforcompaniesinyourrevenuebracket.Anacceptablechurnrateforalargebusinessmaynotbegoodforasmallbusiness.Forexample,projectmanagementtoolScrumpyhasanaverageMRRof$914andseesanaveragemonthlychurnof2.9%.ConvertKit,anemailmarketingcompany,seesover$2millionMRRandhasachurnrateof4.9%. Churnrateisalsoaffectedbypriceandsalescyclelength.Evenproducttypeaffectschurnbecauseit’seasiertoswitchtoalternativesforsomeproductsthanforothers. It’sessentialtotrackyourchurnrateovertimetogetafeelforwhat“highchurnrate”lookslikeforyourcompany. “Itgoeswithoutsayingthatlesschurnisalwaysbetter,butestimatinganupper-boundforchurncanbehelpfulforfinancialmodelingandinternalprioritizationofcustomersuccessefforts,”saysTomTunguz,partneratRedpointVentures. Ifyoufindyourchurnrateisconsistentlyhigherthanaverage,surveychurningcustomerstofindoutwhythey’releaving.Ifpossible,getthemonacallsoyoucanmoreeasilyaskfollow-upquestions.Patternsintheirresponseswillgiveyouanideaofwheretostartmakingchangestoreducechurnrateinthefuture. 9metricstotrackalongsidechurnrate Yourchurnratealonedoesn’tgiveyouthefullpicture.Ittellsyouwhatishappening,butnottherootcause.Churnratecan’ttellyouwhyyourcustomersareleavingorwhatyouneedtodotokeepyourcustomers.Bothofthesearecriticalpiecesofinformationyouneedtoreducechurnrateinthefuture. Churnratealsodoesn’ttellyouaboutoverallgrowthrateorrevenue.Itonlyshowsyouhowmanycustomersyou’relosing.Togetabroaderviewofcompanyhealth,youalsoneedtolookatnewcustomersandupsellswithinthesameperiod. Trackothermetricsalongsidecustomerchurnratetogetamorecompletepictureofcompanyhealth: GrossMRRChurn:Looksatrevenuelostfromchurningcustomers.Ithelpsyoudeterminewhetheryou’relosinghigh-valuecustomersorwhethermostofyourchurncomesfromsmallaccounts. NetMRRChurn:Illustratesoverallrevenuechangesfromexistingcustomersbyaccountingfornewrevenuefromupgradesorexpansions. NetChangeinCustomers:Takesbothnewandchurningcustomersintoaccounttoshowyouwhetheryourcustomerbaseisgrowingasawhole. RevenueGrowthRate:ShowshowmuchyourrevenueisgrowingMOMandgivesyouanideaofhowchurnisaffectingcompanygrowth. ActivationRate:Trackswhethernewusersarecompletinganinitialimportantstepinyourproduct.Alowactivationratemayindicatethatthefunctionalityofyourappisonereasoncustomersarechurning,orthatitismissingcapabilitiestheyexpectedittohave. DAU/MAURatio:Measureshowoftenpeopleareusingyourproduct,whichisanotherindicatorofcustomersatisfaction. NetPromoterScore(NPS):Indicateswhetherpeoplearelikelytorecommendyourproducttoothers.Alongwithchurnrate,NPShelpsgaugeoverallcustomersatisfaction. CustomerSatisfactionScore(CSAT):Showshowhappypeoplearewithyourcustomerservice,usuallybasedonsurveyresponses.CSATcanhelpyoudeterminewhetherhighchurnisduetocustomersupportissues. Customerlifetimevalue(LTV):Showsyouhowmuchrevenuecustomersbringinduringtheirtimewithyourcompany.Thiscanhelpyoudetermineifahighchurnrateisimpactingyourabilitytomakeupyourinitialcustomeracquisitioncost. Recurringrevenuemetrics,suchasnetMRRchurnandgrossMRRchurn,areparticularlyimportantforSaaSandothersubscription-basedcompanies.Thesemetricswillhelpyouseethebroaderimpactofchurningcustomersonyourcompany’sbottomline. AddcustomerchurnratetoyourCEOdashboard Churnrateisavitalmetricforassessingyourcustomerserviceandyourretentionstrategies.Trackingitwillhelpyoudetectdramaticfluctuationsearlyonandaddressproblemsasquicklyaspossible. Addchurnratetoyoursupportteam’sdatadashboardtokeepittopofmind.Displaythedashboardintheoffice,orpostitinSlacksoteammemberscanmonitorchangesinrealtime.Includeotherrevenueandcustomersatisfactionmetrics,suchasnetMRRchurn.Thatway,youcangetaquickpictureofyourcompany’soverallhealth. Lookingforideasofwhattoaddtoyourdashboard?CheckoutthisexampleCEOMetricDashboard. 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