What is customer churn?
Customer churn — also known as customer attrition, turnover, or defection — measures the percentage of customers who stop using your product or service within a given period, typically monthly or annually. This key metric reflects your customer retention rate and directly impacts revenue growth and business stability.
Monitoring churn rate is crucial for identifying customer satisfaction trends, improving retention strategies, and sustaining long-term growth. A high churn rate signals potential issues in product value, customer engagement, or customer support, making churn analysis essential for business success.
Customer churn vs. customer retention
Customer churn and retention rates are two sides of the same coin, both serving as vital metrics for any business. Retention rate measures the percentage of customers who stay with your business over a given period, while customer churn tracks the percentage of customers who leave during that same timeframe. These metrics are inherently linked: a higher retention rate means a lower churn rate, and vice versa.
By closely monitoring both customer churn and customer retention, you gain valuable insights into customer loyalty and the overall health of your business. Minimizing customer churn helps protect your revenue and reduces the cost of acquiring new customers.
How to calculate customer churn rate
Churn rate measures the percentage of customers who stop using your product or service over a specific period.
The churn rate formula is:
Churn Rate (%) = (Churned Customers ÷ Total Customers at Start) × 100
How to calculate customer churn rate:
Churn Rate (%) = (Churned Customers ÷ Total Customers at Start) × 100
Step-by-Step example:
- Choose a time period (e.g. monthly, quarterly, annually).
- Identify the number of customers lost during that period.
- Divide by the total customers at the start.
- Multiply by 100 to express as a percentage.
For example, if you started the month with 1,000 customers and lost 50, the churn rate would be:
(50 ÷ 1,000) × 100 = 5%
An alternative method for calculating churn rate
While the standard churn rate formula is simple, it can become less accurate when your customer base is growing rapidly or fluctuating. For example, if your customer count jumps from 100 to 1,000 in a month, a 2% churn rate will impact revenue differently at the start versus the end of the period.
To account for this, an adjusted churn rate formula uses the average number of customers over a given timeframe instead of the initial count. The formula is:
Churn Rate (%) = Churned Customers ÷ [(Initial Customers + Final Customers) ÷ 2] × 100
How to calculate adjusted churn rate:
Churn Rate (%) = Churned Customers ÷ [(Initial Customers + Final Customers) ÷ 2] × 100
Example calculation:
Suppose you start the month with 300 customers and end with 200. Using this method:
(100 ÷ [(300 + 200) ÷ 2]) × 100 = (100 ÷ 250) × 100 = 40%
In contrast, using the basic churn formula, the churn rate would be 100 ÷ 300 = 33.3%, showing how different methods can yield different insights.
Why use this adjusted churn rate formula?
- More accurate for businesses with fluctuating customer counts
- Provides a better representation of churn across a period
- Helps SaaS, subscription, and high-growth businesses track customer retention effectively
Using the average customer churn rate formula can give a clearer picture of retention trends, especially in industries with dynamic customer bases.
Leveraging software with advanced churn analytics simplifies these calculations, making it easier to apply predictive models and gain actionable insights.
What is a typical churn rate?
You may wonder what constitutes a typical churn rate and if yours is higher than it should be. The reality is that churn rates vary widely across industries and even between companies. What might be acceptable for one business could be detrimental to another.
Effectively monitoring and reducing customer churn is crucial for driving business growth. Lower churn rates result in happier, more successful customers, creating greater opportunities for expansion revenue.
In fact, expansion revenue accounted for 48% of total ARR among B2B SaaS companies in 2024. Prioritizing customer retention is essential, as a significant portion of your ARR relies on it.
The key is to monitor your churn rate consistently over time, allowing you to uncover insights and determine what works best for your unique needs.