CalculationCustomer churn rate is calculated by taking the number of customers you have at the beginning of a month and dividing by the number of customers who cancel their accounts within the month. Churn rate = number of cancellations / number of customersThis is normally expressed as a percentage by multiplying by 100.% churn rate = (number of cancellations / number of customers) × 100
ExampleA telecom service has 1000 customers at the start of the month. During the month they gain 500 new customers and 300 customers cancel their service. Churn rate is calculated as follows:Churn rate = (1000 / 300) × 100 = 30%Note in the example above that the number of new customers doesn't impact churn rate in any way.
Product Churn RateIn some cases, churn rate is also calculated for product sales. This requires data such as ecommerce transactions and company specific definitions for a lost customer.For example, a brand defines a loyal customer as a customer who makes at least one purchase every month for at least 6 months in a row. Once a customer becomes loyal, they remain in this category until they don't make a purchase for four consecutive months. At this point they are counted as a lost customer. At the start of the month the brand has 1000 loyal customers. During the month the brand gains 100 new loyal customers and 17 customers are lost.Churn rate = (1000 / 17) × 100 = 1.7%
|Overview: Churn Rate
The percentage of customers lost over a period of time.
A telecom company improved its customer service practices and reduced its annual churn rate from 4% to 3%.