What is churn rate?

In a given time period, such as a month or a year, the churn rate is the percentage of customers or subscribers who cancel or do not renew.

A company’s churn rate is crucial for companies with recurring customers, such as SaaS and subscription businesses. You’re in trouble if your average customer acquisition cost (CAC) can’t be recouped regardless of your monthly revenue.

How to measure churn rate?

The calculation of your Churn Rate may seem simple in theory, but it is actually quite difficult. Churn Rate can be calculated as follows:-

Number of customers who left/ Total number of remaining customers*100

It can be difficult to determine the number of customers you have over a given period – both existing customers and new ones sign up each month. Because of this, there is no one-size-fits-all method for calculating churn. A Churn Rate calculation can be done in four ways:

  1. The number of customers you have on the first day of the period is divided by the number of churns you have:- Churn/Day 1 customers*100
  2. Churn is divided by average number of customers during the period:- Churn/(day 1 customers + last day customers) /2*100
  3. The amount of churn you should expect each day during a given period:-
    Churn Rate formula
  4. Divide churn by the average number of customers you had during each day of the period (the Shopify method):-
    Churn Rate formula

Churn rate formula

Churn Rate Formula

(Lost Customers / Total Customers at the Start of Time Period) x 100 is the formula for calculating the churn rate. Suppose your company had 150 customers at the start of the month and lost 5 by the end of the month. 0.03 is the answer. As a result, you get a monthly churn rate of 3% when you multiply 0.03 by 100.

Example of calculating SaaS churn rates

For example, if a SaaS company had 1000 new customers in a given time period and 50 of them left without renewing their subscription.

Customer Churn = 50 ÷ 1000 = 0.05
= 0.05 x 100 = 5 or 5%


Churn rate

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