If you’re running a subscription-based business, it’s important to keep track of your monthly churn rate. Churn is the percentage of customers who cancel their subscriptions within a given period. How to calculate monthly churn?
For example, let’s say you have 100 subscribers and 10 of them cancel their subscriptions in January. Your churn rate for that month would be 10%. Churn rates can vary depending on the type of business you’re in and the nature of your customer base.
Businesses with longer-term contracts tend to have lower churn rates than those with shorter-term contracts. And businesses with higher prices usually have lower churn rates than those with lower prices because it costs more for customers to switch providers. But no matter what industry you’re in or what type of customers you have, it’s important to know how to calculate monthly churn so you can prevent customers from leaving.
After all, it costs five times as much to acquire a new customer as it does to retain an existing one.
How to Calculate Monthly Churn
The rate at which customers leave or stop subscribing to your software is called churn.
Churn rate is a critical metric for companies that sell subscriptions like SaaS businesses.
Regardless of how much revenue you gain, if your customers don’t stay around long enough to cover your cost of acquiring them, you’re losing money.
If you have CRM software, you can find out how many of your customers churned — specifically, how many users you had at the beginning of a period and how many users you had at the end.
Find out how many customers you lose every month or every year.
A high customer turnover rate means that you’re not only losing money but that you’re failing to acquire new customers.
If you don’t track your customer turnover rate, you won’t know how churn is hurting your bottom line. This data will help you identify which of your business practices are keeping people coming back and which aren’t.
Churn Rate Formula
How to calculate monthly churn? The formula is as follows:
Lost Customers ÷ Total Customers at the Start of Time Period x 100.
For example, if you have 250 customers at the start of the month and lost 10 customers by the end, you would divide 10 by 250.
The result is 0.04 which you then multiply by 100 for a 4% monthly churn rate.
If you’re intimidated by math, there are tools available that will automatically calculate the rate of your subscriber attrition.
Steps to Calculate Churn Rate
- Select a period: monthly, quarterly, or yearly.
- Find out how many customers you had at the beginning of the period.
- Find out how many customers unsubscribed by the end of the period.
- Divide the number of lost customers by the number of customers at the start of the period.
- Multiply that number by 100.
Here’s another example.
Let’s say your SaaS company had 500 subscribers at the beginning of last quarter.
However, you lost 50 of them due to expired contracts and a few customer complaints.
To calculate your churn for the quarter, take the 50 lost customers and divide by the 500 initial customers. Then multiply that number by 100. This results in a customer churn rate of 10% for that quarter.
Now that you know your churn rate, you might be wondering how you can reduce it.
What is a Good Churn Rate?
A churn rate of 2% to 8% is acceptable in the case of B2B or B2C businesses offering self-service products. The lower, the better, or it can hurt your monthly recurring revenue (MRR).
For B2B SaaS companies with contracts worth $1000 per month, the acceptable churn is under 2% per month.
What is Annual Churn Rate?
The yearly rate of customer loss is often referred to as annual churn. To calculate this metric, look at the number of customers you had at the beginning of the year and compare it to the number of customers remaining at the end of the year.
Subtract those two figures and then multiply by 100.
What is Monthly Churn Rate?
The MRR is the percentage of clients who leave each month. To calculate this, simply take the number of new clients you had at the start of the month and subtract the amount who left.
Then multiply the result by 100.
How Can I Track Churn?
Tracking your employee turnover rate can be a difficult task. Fortunately, Microsoft Excel has a variety of tools that can assist you in analyzing your figures.
HubSpot’s reporting dashboard can also help you automatically calculate and track your company’s churn rate.
What is the Difference Between Attrition and Churn?
Churn is the same as attrition. These terms are also interchangeable with customer turnover and customer defection.
How to Reduce Churn
Is your attrition rate too high? There are a few things you can do to lower it.
If companies don’t lower their customer turnover rate, they could face some serious problems in the future.
1. Analyze Churn
Customer attrition happens, and when it does, use the opportunity to learn more about why a customer left, and what you can do to prevent them from leaving in the future.
It’s important to keep accurate records of your customer retention and customer turnover rates so you can identify any problem areas. A customer service metrics calculator can help you with this.
By measuring your customer service’s effectiveness, you can pinpoint areas that need improving. You can also compare your customer service and product/service to that of your competitors, or use it to identify customer pain points that you’d like your product development or marketing teams to address.
2. Revamp Your Onboarding Process
You can prevent customers from churning by creating a thorough and personalized process for welcoming new customers. After a customer signs up, send them a welcome email with 1:1 online training sessions.
If you want your customers to stick around, you should create content that helps them get the most out of the products or services you offer. You can do this by publishing blog posts, social media posts, and videos that explain how they can use your products.
3. Invest in More Training for Your Sales Team
Your sales team should sell the value of your product, not the price. Your customer support team should handle any customer complaints or issues. By investing in these areas, you can reduce attrition.
The impact of investing in resources and processes for your sales and marketing teams can have drastic effects on your rate of customer turnover.
4. Get Feedback at Key Moments
Make sure you ask for feedback at key points in the customer’s journey.
If you’re worried that your customers will cancel their subscription if they don’t log in for 15 consecutive days, reach out for feedback on their usage on day 10.
By getting ahead of their cancellation, you can address their issues before they leave. By keeping these users as happy customers, you can prevent future cancellations.
When a customer reaches a key milestone with your product, you should immediately ask them for feedback on their experience. This can help you identify key moments in the customer lifecycle that impact their happiness, and allow you to take steps to strengthen that bond.
Customer feedback can come in many forms, including negative reviews. It’s important to respond to these reviews in a timely manner.
5. Respond Proactively
Building rapport is important, but so is staying proactive. Make sure you’re keeping in touch with your prospects and customers so they know they can trust you.
Keep in touch with them by sending content that they will find useful, connect with them via social media, and reach out to them if there’s ever an issue or outage on the service.
6. Offer Exclusive Perks to Current Customers
To keep your customers from churning, you could offer rewards to current clients. However, a rewards program works better for retail stores.
Instead of making all your contact attempts over the phone, consider personalizing your approach every now and then. For example, you could schedule a coffee chat with them or pay them a personal visit at their place of work.
For small businesses, having the owner or CEO make personal phone calls to existing clients is a great way to check up on them. It’s also a great opportunity to ask for their feedback on how you’re doing.
When a customer is busy, they may not have time to fill out a long, detailed survey. However, if the CEO of the company requests feedback from them, they may be more inclined to provide it.
7. Leverage Feedback from Free Trials
Churn happens only after you’ve lost revenue from customers leaving. But if someone doesn’t purchase your product after a free trial, that can also be counted as churn.
Survey people who did not buy your product after a free trial. Someone who has left the sales cycle likely won’t give you many details as to why they didn’t pick you.
If someone signs up for a free trial but doesn’t make a purchase, they’ll expect a follow-up survey. Since they’ve had very little contact with your company, they’ll be more likely to give honest feedback.
Use customer feedback to improve your product or service. Learn what causes customers to churn before they ever become paying customers.
Use these techniques in conjunction with your retention strategy to keep customers from churning.
Now, you may be asking yourself: what does churn look like in real life? Let’s look at some well-known examples.
Churn Rate Examples for SaaS Companies
Successful B2C SaaS companies often publish their churn rates to show how good they are at customer retention.
These examples can guide you in understanding your own churn rate.
Netflix: 2.5% Monthly Churn Rate
Netflix has the lowest customer turnover rate in the video streaming industry. With a monthly churn of only 2.5%, it means that more than 97% of customers choose to stay with Netflix.
What is Netflix doing right? It has an expansive catalog of shows and it has become a well-established brand voice.
Disney+: 4.3% Monthly Churn Rate
In 2019, the Walt Disney Company launched its streaming service which allows users to stream its movies and television shows. Since then not many have left Disney Plus.
Disney+ has a monthly churn rate of 4.3% — no surprises there.
Spotify: 4.8% Monthly Churn Rate
The popular music streaming app Spotify helps you discover new music based on your own unique tastes. Its massive library includes millions of songs and is tailored to your musical preferences. However, it does have a relatively high churn rate of 4.8%.
Hulu: 5.2% Monthly Churn Rate
One of the biggest competitors of Netflix, Hulu is known for having exclusive TV content. Although Hulu has a 20% market share, it has a 5.2% monthly churn rate.
Peloton: 8% Annual Churn Rate
Peloton has an 8% annual churn rate. The fitness subscription company enjoys a 92% retention rate as the first-ever in-home cycling fitness subscription company.
Its status as a pioneering app in this type of technology has cemented its dominance.
Adobe: 10% Annual Churn Rate
Design software giant Adobe has less than 10% annual churn, which means over 90% of customers are happy with it.
Apple TV+: 15.6% Monthly Churn Rate
Some reports have claimed that Apple’s new streaming service has a monthly churn rate of up to 20%.
Apple TV+ has been called the “most unloved” Apple product. Another observer explained that the limited catalog and non-original content could be the reason behind the high churn rate.
With all of these examples of good or great churn rates, it can be difficult to define what the best rate is.
How to calculate monthly churn? Find the difference between the number of customers from the start and end of the month then multiply the number by 100. Keep in mind that churn rates can vary depending on the industry but it’s important to track nonetheless if you want to grow your business over time.