Calculating churn is simple. First, determine the period you want to examine: month, year, day, etc. Next, determine how many customers you had at the start of the period and the number of customers you had at the end of the period.
For this example, let’s say that at the start of the period you had 10,000 customers. When reviewing the data, you calculate that 1,000 of those customers have left and are using products/services from elsewhere. Divide 1,000 by 10,000 and you get your churn rate: 0.1. Multiply by 100 to get the percentage. In this case, it would be 10 percent.
Calculating the Impact of Churn
Because of its direct impact on growth, churn is one of the best indicators of the health of your business. If acquisition shows you how successful you are recruiting new customers, churn shows you how successful you are at retaining them.
It is also a benchmark for measuring your performance compared to your competitors. How does your churn rate compare to other companies in your industry? How does it compare to other companies your size?
Churn also provides insight into product and pricing changes. Did churn dip when you lowered monthly fees? Did it rise when you discontinued an old feature?
Separating customers into separate categories gives an even better understanding. If older customers are churning at a higher rate, for instance, it may indicate your focus on new business is distracting you from existing clients.
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