Churn rate is a business metric that measures the proportion of individuals or items moving out of a group over a specific period. In the context of a business, churn rate is the rate at which customers stop doing business with an entity. It is also known as the rate of attrition or customer churn. Churn rate is widely applied in business for contractual customer bases, such as subscriber-based service models used by mobile telephone networks and pay TV operators.
A high churn rate can negatively impact Monthly Recurring Revenue (MRR) and can also indicate dissatisfaction with a product or service. Churn is the measure of how many customers stop using a product, and it can be measured based on actual usage or failure to renew when the product is sold using a subscription model.
To calculate churn rate, choose a specific time period and divide the total number of subscribers lost by the total number of subscribers acquired, and then multiply for the percentage. Churn rate is an input into customer lifetime value modeling and can be part of a simulator used to measure return on marketing investment using marketing mix modeling.
Reducing churn is a real financial priority because the cost of acquiring new customers is much higher than the cost of retaining those already onboard. Everything possible should be done to keep current customers satisfied, maintaining their usage and increasing their lifetime value.
