Customer Churn Rate

Customer churn rate or Customer attrition rate, is the rate at which customers are cancelling their subscription. Churned customers means fully cancelled customers.

Customer Churn is one of the most important metrics in any organization. This is something which you need to constantly monitor. Even if your Net New MRR is at an upward trend month on month, if you do not have the churn under control all the new MRR additions will be nullified by the increasing churn. An increase in the customer churn also signifies customer dissatisfaction in terms of service or value. If you are on top of your service and customer metrics then to a great extend you can identify dissatisfaction issues and in turn bring down customer churn.

How to calculate Customer Churn Rate?

If at the beginning of this month, you had 100 customers, and 10 of them fully cancelled all services. Then the customer churn is 10 and the churn rate 10/100, i.e the churn rate is 10% for that month. The churn rate of 10% means that 10% of your total active customers had cancelled this month

The Number of customers cancelled, includes only the customers who do not have any active subscription.

Customer churn rate is a very critical KPI as, for recurring revenue it is not a one-time loss but a month-on-month future revenue loss, which affects the stability of the organization. Also, the cost and effort for retaining a customer is far less than acquiring a new customer.

For a start-up or SMB, as they are working diligently on acquiring new customers, an increase in the churn rate needs to be considered with caution. There needs to be a thorough retrospection of what went wrong. Though, not all reasons can be controlled. However, what could be fixed in terms of customer satisfaction and service quality can be fixed to promote customer retention.