Optimizing churn rate is one of the best ways to know if your business can create loyal customers for a certain period. By definition, the churn rate is the rate at which customers stop doing business with an entity (thanks, Investopedia!). More specifically, we like to look at it as how long you were able to maintain the interest of your customers. While the metric seems simple on the surface, it gives valuable insights into areas of future growth and improvement. We'll take you through how to calculate this metric, how to understand it in the context of your industry, and how to apply it to the platforms you're using now.
You can calculate the churn rate by dividing the number of churned customers by the total number of customers. Churn rate can be assessed for various time-periods (i.e. day, week, month, year) and, if your churn rate is tied to certain products or campaigns, you can assign a specific churn rate for each.
If you’re confused about how to define the number of churned customers and total number of customers, we’ve included some nifty definitions and examples below:
There are also other ways of computing the churn rate of a business. The one above is the most basic way which can also be called customer churn. There is also gross dollar churn, which calculates the total revenues lost.
When choosing what to include in your calculations, remember: consistency is key! That means, if you decide to include XYZ in your churn rate for the month, you should include it in the next month’s churn rate as well. Having consistent metrics will allow you to better identify the causes of good or bad performance.
Again, as you begin (consistently) monitoring the churn rate, you’ll be able to find insights specific to your strategy. Of course, it’s also important to understand your churn rate in relation to your broader industry. To help you know what to expect, we’ve included a list of average churn rate per industry:
Further, we've identified a popular platform that is particularly relevant to churn rate. This may be good place to begin if you’re getting started with this metric:
While churn rate is easy to calculate, it’s important to keep in mind that the churn rate is one of many valuable metrics to track your performance. If you don’t want to spend hours at the end of the month juggling numbers from your Stripe and other accounts, consider trying Lido. Lido can help you build a dashboard to monitor your data and give a look into how your key metrics (such as churn rate) change over time.
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