The formula
Churn rate = customers lost in the period / customers at the start x 100
Yearly churn = 1 - (1 - monthly churn)^12
How do you calculate churn rate?
Count the customers you had on the first day of the period, and how many of them had left by the last day. Divide the second number by the first. New customers won during the period stay out of both: they weren't there at the start, so they can't have left from it.
Worked example, with made-up figures: a cleaning company starts March with 400 customers on a monthly plan. By the end of March, 12 of them have cancelled. It also won 20 new customers, and they don't count here. Churn is 12 / 400 = 3% for the month, so 97% of March's starting customers stayed.
What churn costs you
Each customer who leaves takes their payment with them, and every payment after it. That's the part a busy sales month hides.
Worked example, with the same made-up company: each customer pays $50 a month, so the 12 who left take 12 x $50 = $600 a month with them, or $7,200 over a year. April's new sales have to replace that $600 before any of them count as growth. Each one also takes the rest of their customer lifetime value.
Why 3% a month isn't 36% a year
Monthly churn doesn't multiply by 12, because each month's losses come out of a smaller group than the month before.
Worked example, with the same made-up company: keep 97% a month and after 12 months 0.97^12 = 0.694, or about 69%, of the starting customers are left. Yearly churn is about 31%, not 36%. Going the other way, a yearly churn of 20% is 1 - 0.8^(1/12) = 0.018, or about 1.8% a month. And at 3% a month, a customer stays about 1 / 0.03 = 33 months, which is the years-kept figure lifetime value needs.
What churn rate actually tells you
Churn and client retention rate are two sides of one count. Retention is the share of your starting customers who stayed, churn is the share who left, and the two add up to 100%. Churn is the one to watch month by month, because it names the losses while there's still time to call. Retention reads better in a yearly report.
How to measure churn in your team
- Count only the customers who were there on day one.
- Decide what counts as leaving. For a plan or contract, it's a cancellation. For customers who buy now and then, it's no order in a set time, such as 6 months. Write the rule down and keep it.
- Keep the period the same each time, and turn it into a monthly rate before you compare two figures.
- Count the revenue lost as well when customers pay very different amounts. Losing your three biggest customers is a different month from losing three small ones.
- Write down why each customer left. One line each is enough, and after a quarter you'll know which reason to fix first.
What is a good churn rate?
We don't print an industry churn rate. A figure averaged across other markets, contracts and prices won't tell you whether yours is good. Good is lower than your own last four quarters, worked out the same way each time.
| Who's looking | What they check | What good looks like |
|---|---|---|
| Owner | Monthly churn and the revenue it takes | Falling, with new sales more than replacing what leaves |
| Sales or account manager | The customers who left this month, and why | A reason written down for every one |
| Whoever looks after customers | Customers nobody has spoken to in 30 days | That list shorter each month |
How to bring churn down
Most customers who leave go quiet first. What usually sits behind a rising churn rate:
- New customers leaving in their first months, before you've proved yourself.
- Customers nobody has spoken to since the sale.
- A price rise that arrived as an invoice, not a conversation.
- One reason that keeps coming up in the notes and never gets fixed.
And what brings it down:
- Call every new customer in their first month. Date that call on the day you win them.
- Once a month, list the customers you haven't spoken to in 30 days and put a dated follow-up on each one.
- Tell customers about a price change yourself, before the invoice does.
- Fix the reason at the top of the list before you chase more new customers.
- When one leaves anyway, winning back lost customers covers who's worth asking back and what to send.
Work out your churn rate
Churn: 3%
- A year: 30.6%
- Customers kept: 97%
- Revenue lost: $600 a month
Where it shows up in your week
The monthly call list is the customers who've gone quiet. The CRM shows who's gone quiet for 30 days, with every message, meeting and note about them on their page.
Related KPIs, terms and tools
Questions managers ask
Sources
The page states no outside figure, so there's nothing to cite here.