What is a churn?
Definition: Churn is a term that describes the process of subscribers canceling their subscription to the service. It is also known as customer attrition or customer turnover.
Churn is a metric used by businesses that rely on a subscription-based revenue model to create better customer retention strategies leading to business growth.
How is churn calculated?
Churn is the number of customers lost over a certain period of time represented by a numeric value.
It is calculated by:
- Selecting a period wanted to be measured.
- Identifying the number of customers at the start of the period.
- Identifying the number of customers at the end of the period.
- Subtracting the number of new customers.
Starting Customers + New Customers - Ending Customers = Churn
For example, at the start of the month, a business had 100 customers and acquired 120 new ones, but at the end of the month, the total number of customers was 200, meaning the churn was 20.
Examples of churn
A SaaS company has productivity software, and customers pay to use it monthly.
In one month, they had sixteen customers churn (cancel their subscription) for the reasons:
- A competitor is offering a lower price for the same, making five customers unsubscribe.
- Three customers thought they would solve the problem of prioritizing their tasks, but they didn’t find value in the software.
- Two customers requested a feature to connect the software to their mobile task application, but the feature wasn't built in the last three months.
- A customer had a problem with the software for days, but customer support didn’t do anything about it.
- Two customers didn’t know how to use the product because of the poor onboarding process.
- A team of three stopped using the software because of new budget constraints for their department.
The reasons customers churn are different for every business and vary depending on the product they are selling, their buyer persona, business model…
Understanding why it is happening helps companies reduce the risk of churn.