Churn Rate Calculator

There is a four-step process for calculating the churn rate. These are:

1. Determine the number of new customers starting during the time frame.
2. Determine the total number of customers lost during the given period. 
3. Divide the number of lost customers by the number of starting customers to get your churn rate as a decimal. 
4. Multiply the number by 100 to turn it into a percent.

Let’s do an example calculation together.

Post Up is a subscription service that allows customers to schedule and automatically post social media posts. Post Up’s leadership wants to look at the churn rate for the fourth quarter of last year. They onboarded 2,932 customers during that period of time and lost 386. Let’s plug those numbers into the first part of the formula:

0.13 = 386 / 2,932 

Now we just multiply the decimal by 100 to turn it into a percent.

13% = 0.13 × 100

Post Up has a churn rate of 13 percent, which is a bit too high. Management needs to focus on implementing new strategies to lower the churn rate (more on that below).

Your churn rate gives your gut check insight into how well you bring in and keep your customers. Churn rate is a brute business metric that indicates if your business is optimal, average, or needs improvement. Businesses tracking churn can improve customer retention and lifetime value ( LTV). This, in turn, improves the bottom line. 

It costs less to retain existing customers than to attract new ones. Businesses that rely on monthly recurring revenue (MRR) as the heart of their business model are susceptible to a high churn rate. As SaaS businesses almost exclusively use subscriptions, the churn rate is often called a SaaS metric.

You want your churn rate to be as close to zero as possible. But a healthy churn rate is ultimately determined by the averages within the industry. The churn rate is most often associated with the SaaS industry, where the average churn falls between five and seven percent. A good churn rate is three percent or lower. 

But in other industries, the average churn rate is higher. In the IT service industry, the average churn is at 11 percent. The financial services industry has a 19 percent average churn rate. And telecommunications is even higher at 31 percent.

Churn rate is about two things: customer attraction and retention. So improving your churn rate means improving the process through which you bring in new customers. Plus, improving their experience and satisfaction levels when they’re active customers. This is no small task and will require collaboration with the sales, marketing, and product teams. 

Here are some of the best tactics for improving your churn rate. 

1. Identify the possible causes of high churn: Where are the numbers most out of whack? Do you have a low attrition rate but aren’t bringing in new customers? Or are you bringing in plenty of new customers but have a low customer retention rate?

2. Survey customers: Get to know what your customers think by asking them. Ideally, you would survey current, former, and prospective customers. You’d also survey customers regularly.

3. Redefine your ideal customers: Are you targeting the right people? Are you speaking their language? How well do you understand them? This is where you can review how well you know your customers. 

4. Review your pricing strategy: Are you priced much higher or lower than your competitors? 

5. Review your product: Are competitors offering something your company does not? Are there glitches or other issues with the product that are turning customers away? An internal audit of your product can help you answer these questions (along with the survey!)

6. Invest in your customer service team: Ensure your team is investing in customer support services and a customer success team.

7. Review customer onboarding: Are customers purchasing but never using the product? Is there a point at which most customers stop using the service? Here is where you might offer additional tutorials. Or you might construct a series of onboarding emails to remind customers about the product’s usefulness. 

The term churn rate can be used to describe either the rate at which customers leave a business or the rate at which employees leave a company. In both instances, the company intends to replace the person who “churned.” 

The turnover rate is a bit different. Turnover happens when an employee leaves a position, but the job is never intended to be refilled.