Churn
What is the customer churn?
Churn represents the percentage of lost customers in a given time range (e.g., a year, a quarter, etc.), and it can be calculated by dividing the number of lost customers to the number of initial customers in the said time range.
Churn = (Nlc/Nic)*100
Nlc = Number of lost customers
Nic = Number of initial customers
Customer churn, known as Churn rate, represents the percentage of customers that stopped using your product or service in a specific time range (e.g., a quarter, a year). While most companies calculate the churn by the Number or percentage of customers lost, some apply the same formula (and term) to calculate the percentage of recurring revenue lost.
Why is the customer churn important?
Long term customers are the best for business revenue, as it costs more to acquire new ones than to keep the current ones engaged! Knowing the churn rate helps a business understand if the acquisition process vs. retaining process is working and where can processes be optimized to get higher revenue and longer customer life. A stable retain process means higher revenue and fewer acquisition costs!
How to calculate the churn rate
Calculate the churn rate by dividing the Number of customers who canceled your service in a specific time range (e.g., a year) by the Number of customers you had at the beginning of that time.
Churn = (Nlc/Nic)*100
Nlc = Number of lost customers
Nic = Number of initial customers
Say you start the year with 1200 customers and end with only 900.
Churn = (300/1200)*100
Churn = 25%
300 represents the number of customers lost (1200-900=300), and your churn rate would be 25% because you lost 25% of your customers.
