Churn Rate

What is churn rate?

Churn rate is the percentage of customers who stop using a product, service, or subscription over a given period. It is calculated by dividing the number of customers lost in a period by the number of customers at the start of that period. Churn rate is an essential health metric for subscription businesses, loyalty programs, and any recurring-revenue model — high churn erodes LTV and drives up customer acquisition costs.

How does churn rate work?

Churn rate can be caused by a number of factors, including:

• Customer dissatisfaction (if customers are not satisfied with a product or service)
• Competition (if customers have access to a better product or service from a competitor)
• Price (if customers find a cheaper product or service from a competitor)
• Lack of features (if a product or service does not have the features that customers need)

How to measure churn rate: Churn rate is calculated by looking at a specific segment in time — usually a quarterly period — and dividing the number of customers or subscribers who “quit” by the total number of customers or subscribers at the beginning of those chosen periods. For example, if a company has 100 customers at the beginning of the month and 10 customers churn during the month, the churn rate for the month would be 10%.

Why is churn rate important to marketers?

There’s a general rule that  80% of a company's revenue is generated by 20% of its customers. So having a clear view of where and how customers and/or subscribers are dropping off a marketer’s list is crucial information. Given that it’s more expensive to acquire a new customer than it is to retain an existing one adds to the importance of keeping an eye on churn rates.  Reducing churn ultimately allows marketers to save money on acquisition costs and improve their profitability.

Who needs to know what churn rate is:

• Digital marketing manager
• Paid search specialist
• Social media manager
• Content marketing manager
• Affiliate manager
• E-commerce manager
• Product manager
• Marketing analyst
• Brand manager

Reducing churn through post-transaction engagement

The post-purchase moment is one of the highest-leverage points for reducing churn. A consumer who has just made a purchase is at peak engagement — the moment to reinforce their decision, introduce loyalty benefits, and present relevant next offers. Commerce media placements on confirmation pages and loyalty screens that deliver immediate value reduce the likelihood of buyer's remorse and increase the probability of a follow-on purchase.