You could be welcoming a truckload of new customers through the front door, but if you’re not tracking your churn rate, you could be losing more of your existing customers in the back.
If you want to become (or remain) profitable, churn rate is one of the most important metrics you should track.
Ready to see if you’re losing more customers than you’re acquiring?
Let’s examine how to calculate your customer churn rate, benchmarks for success, and tips to reduce that churn and boost profitability.
Churn can be calculated by the number of customers who stop purchasing or the amount of revenue you lose when those existing customers say adios to your business.
For example, here’s a simple churn rate calculation:
Customer churn rate = (Customers lost during time period / Total number of customers at the start) * 100
If you want to see this in terms of the financial impact, use this revenue churn rate formula:
Revenue churn rate = (Revenue lost during time period / Total revenue at the start) * 100
On the other hand, negative churn refers to acquiring more customers than you lose. If you lose 50 customers but acquire 78 new ones over the same period, income from the new customers will replace the revenue lost through churn.
Churn rate is a prevalent SaaS metric; subscription businesses rely on it to guide customer retention strategies. However, this KPI is useful across many industries, so keep reading.
Tracking churn is key to building better customer retention. So, if you’re wondering if it’s worth it, just remember: increasing customer retention rates by just five percent increases profits by 25 to 95 percent.
When you do regular churn analysis and track your annual churn rate, you’ll see:
Of course, you don’t track churn in a vacuum—watch this essential sales KPI alongside others, including your revenue growth rate, customer acquisition costs (CAC), MRR and ARR, and customer lifetime value. That way, you’ll have a full picture of your sales health and customer base.
Remember: churn compounds over time. What might sound like a low percentage of cancellations can ultimately cost your business thousands of dollars each year?
Do you have a good churn rate—one that’s on par with the competition or in your industry?
Recurly Research reports that the average churn rate in B2B is 4.91 percent. And B2C sees 6.77 percent.
About 3.9 percent of churn is voluntary—due to customer dissatisfaction. And about 1.4 percent is involuntary—due to payment issues.
According to Paddle, the average churn rate for SaaS companies falls between 2 and 8 percent of MRR. This supports Recurly’s research, which shows the average churn rate in software landing around 4.75 percent.
Consumer goods and retail see 7.55 percent, healthcare 6.03 percent—and so on.
Of course, other factors can impact the number of churned customers you see in a given period, including the age and size of the company or the pricing structure. So, watch your industry benchmarks, but remember to use your own numbers to benchmark progress over time.
We know the formula, but let’s narrow down the exact steps to calculate your business's churn rate (and monitor it over time).
Subscription-based businesses might track their churn rate every month (based on usage patterns or payment structures), while another B2B company may track it quarterly.
Choose a period that fits your industry, the frequency of customer interactions, and your pricing and subscription model. That way, you can track and compare your churn rates over time and make data-driven decisions.
Use your CRM or another data tool to define the number of customers you had at the beginning of your chosen period. Exclude any new customers.
To get more granular, segment your current customers by demographics, subscription details (like pricing tier), acquisition channel, or product use case. This cohort analysis can help you identify trends and prioritize the right activities.
Now, it’s time to see how many customers churned. If you’re using a data-savvy CRM like Close, you can find this information with its built-in reporting features.
Keep this information handy so you can always make data-smart decisions. Want to see how Close can help?
Time to grab your churn rate formula!
Divide the number of customers lost during the period (Step 3) by the total number of customers you had at the start of that period (Step 2). Then, multiply the result by 100 to express the churn rate as a percentage.
Yes, this is an ongoing process. (I didn’t think you’d finish that easily, did ya?)
If you want this data to be meaningful, you need to compare it to industry benchmarks and previous periods within your own business. That way, you can identify trends and turn that data into action.
Here are some ways you can analyze your churn rate data:
Your goal here: understand why customers churn and what you can do to stop it. Use the collected data to inform your decisions, and you’ll have a better shot at improving customer retention (and ultimately growing your business).
Customers churn for different reasons, including:
So, what actions can you take to reduce that churn rate?
Even the smallest decrease in churn can greatly impact your bottom line. So, let’s take a look at actionable ways to prevent churn before it happens:
These strategies can help you preempt churn—but what if a customer is already at the point where they’re ready to cancel? Here are two things you should do that can help reduce churn:
Customer churn is a compounding issue that needs to be solved ASAP. Neglect it, and you’ll watch revenue dwindle, growth rates suffer, and the longevity of your company slowly slip away.
There is a clear financial incentive for reducing churn. It also leads to more accurate sales forecasting and better customer satisfaction. And even if it hits the benchmark, remember: the lower your churn rate, the better.
So, to achieve that low churn rate, study yours, calculate it (via cohort analysis if necessary), and implement strategies to improve it.
It might seem like a hopeless, time-consuming task at times, but stick with it. It pays dividends (literally).
Need help managing your sales process and tracking your churn rate? Close provides built-in, user-friendly features like reporting and automated outreach to boost your growth—sustainably.