Customer Churn Rate
What is Customer Churn Rate?
Customer Churn Rate is the percentage of customers lost during a given period of time. For SaaS or mobile apps, this means customers who cancel their subscription. For ecommerce, this means customers who fail to make a repeat purchase within an average timeframe for the business (could be 90 days, 120 days, or some other length of time).
The inverse of this metric is Customer Retention Rate which focuses on the customers retained over a given period of time.
Advice from VCs: Why Customer Churn is critical
“One of the top five metrics I look for in startups that are scaling is the retention of users or customers.” - Tom Henriksson, Partner at Open Ocean Capital
How to calculate Customer Churn:
[ (#) Total customers churned this time period
(#) Total customers at the start of this time period ]
(%) Customer Churn Rate
Calculate Customer Churn Rate by dividing the total customers churned over a time period you specify (e.g. month, 90 days, etc.) by the total customers at the start of the time period and then multiply that by 100 to generate a percentage. For example, if the total customers lost this month was 150 and the total customers at the start of the month is 5,000, then the Customer Churn Rate would be 3%.
150 (total customers churned in August) / 5,000 (total customers as of August 1st) X 100 = 3%
Customer Churn Rate can also be calculated on a cohort basis instead of monthly. (A cohort tracks a group of customers who subscribed around the same time. Learn more about cohorts or download a free cohort analysis template.) The formula is quite similar to monthly version. Simply change the figures to reflect the duration of the cohort, not a single month. See the adapted calculation below.
[ (#) Total Customers Churned from cohort
(#) Total Customers in Cohort from specified time period ]
(%) Customer Churn Rate for Cohort
Customer churn helps you see trends in product satisfaction (or dissatisfaction). Analyzing customer churn based on cohorts can be particularly insightful for determining why or what other factors may be influencing customer decisions (e.g. pricing updates, new feature rollout, changes in messaging, etc.).
While customer churn is a helpful metric for detecting a ‘leaky bucket,’ it varies from revenue and doesn’t indicate which customers you’re losing (i.e. high-value customers, low-value customers, or perhaps customers who would be better served with another product). It’s best to track this startup metric along with other key metrics such as Revenue Growth Rate, Net Promoter Score, and DAU/MAU Ratio.
Relevant Startup Metrics and KPIs:
If you’re adding Customer Churn Rate to your Startup CEO dashboard, you might want to also consider tracking these related startup metrics for context.
Benchmarks for Customer Churn Rate vary significantly depending on company stage (SMB, Mid-Market, or Enterprise). There’s also quite a bit of ambiguity around benchmarks for customer vs revenue churn.
“The maximum viable churn for a company depends on the company’s runway and the rate at which the startup can grow accounts through up-sell and cross-sell. It goes without saying that less churn is always better, but estimating an upper-bound for churn can be helpful for financial modeling and internal prioritization of customer success efforts.” - Tom Tunguz, Partner at Redpoint Ventures
If you want to learn more about revenue churn (e.g. MRR churn) for SaaS companies, see Net MRR Churn or Gross MRR Churn.
Want to create a startup CEO dashboard using this metric? Check out this example CEO Metric Dashboard.