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Glossary Keep customers loyal 2 min read

What is churn rate?

Lewis Dowling Managing Director and Consultant

Short answer

Churn rate is the share of customers who stop buying from you over a set period, usually a month or a year. If you start the year with 100 customers and 10 leave, your annual churn rate is 10%. It's one of the clearest signs of whether customers are happy enough to stick around.

Also known as: Customer retention, Customer journey, Customer onboarding

Contents

Why it matters

Most growing businesses put their energy into finding new customers. That makes sense, but if customers are leaving out the back door at the same rate, you're running to stand still. (What we call a leaky bucket.)

Keeping a customer is usually easier (and far cheaper) than winning a new one. They already know you and trust you. Every customer who stays is someone you don't have to replace, and they're often the ones who recommend you to others.

Churn is also an early warning. A jump usually means something's gone wrong, maybe with your service or because a competitor's offering something better. Spotting it early gives you a chance to fix things before word gets around.

Common mistakes

  • Only looking at the total.

    A single number hides a lot. Break it down by type of customer or by how long they'd been with you, and patterns start to show.

  • Not asking why.

    The number tells you that people are leaving. A quick call or a short exit survey tells you the reason.

  • Waiting until they've gone.

    Customers usually show signs before they leave, like buying less often or going quiet. Keep an eye out.

  • Thinking all churn is bad.

    Some customers were never a good fit. Losing them can free up time for the ones who are.

How to get started

  • Decide what counts as "lost". For subscriptions, it's a cancellation. For other businesses, it might be no orders in six months.
  • Work out your current churn rate. Use the formula above for the last year, then for each quarter, so you can see the trend.
  • Talk to a few customers who've left. Keep it friendly and short. Most people are surprisingly honest if you just ask.
  • Look at the first few weeks. A lot of churn starts with a bumpy start. Check how new customers are welcomed and looked after.
  • Fix the biggest reason first. Then track churn again in a few months to see if it's made a difference.

FAQs

What's a good churn rate?

It depends a lot on your industry and business model. A monthly subscription service will usually have higher churn than a business with long-term contracts. The most useful comparison is your own churn rate over time.

What's the difference between churn rate and retention rate?

They're two sides of the same coin. Churn rate is the percentage of customers who leave. Retention rate is the percentage who stay. If your churn rate is 10%, your retention rate is 90%.

Does churn only apply to subscription businesses?

No. The term is most common in subscription businesses because cancellations are easy to count. But any business with repeat customers can track it. You just need to decide what counts as a customer leaving.

Can you measure churn by revenue instead of customers?

Yes. That's called revenue churn. It's handy if your customers vary a lot in size, as losing one big client can matter more than losing five small ones.

Related terms