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What is a Churn Rate Formula? 13 January 2022

What is a Churn Rate Formula?

 

Churn or attrition has been a constant roadblock for any service company. Companies witnessing higher churn rates diminishes their ability to grow and curbs their profits, while adding to their overhead costs. Organizations need to keep a keen eye on their customer base and its fluctuations to take necessary preventive measures. While there are several methodologies or approaches to address this, having a strategy at places based on fact and figures from analytics can help win the situation at all times. With the right dataset and analytics, businesses can take measures in deciding their next strategy. 

 

Now let’s start with the basics and how you can calculate churn rate at your organisation. 

 

What is the Customer Churn Rate?

Customer churn rate is a percentage of customers who cancel the subscription or leave the organization in a specific period of time. It is one of the most important factors for organizations whose customers pay a monthly subscription, like SaaS industries. 

 

What is the Churn Rate Formula?

 

Churn Rate Formula

 

So, for example, lets say Netflix acquired 1000 new subscribers in a month, but they lost 200 subscribers the next. 

 

So, churn rate formula = (200/1000) * 100 = 20 percent. 

 

In this scenario, Netflix has a monthly churn rate of 20 percent.

 

What is Revenue Churn Rate?

The percentage of money lost in a specific period of time due to customers leaving the organization. It is an indicator of growth for the organization, and even when the churn rate is higher, if revenue churn is low, it is considered a win. 

 

What is a Revenue Churn Rate Formula?

 

Revenue Churn Rate Formula

 

For example, Netflix has a total revenue of 100000 dollars at the start of a month. It has a total revenue of 85000 dollars at the end of the month and spends 10000 dollars in infrastructure upgradation. 

 

So, revenue churn rate formula = ((100000 – 85000- 10000) / 100000) * 100 = 5

 

So, the monthly revenue churn rate of Netlfix in this scenario is 5 percent.

 

How to Reduce Churn Rate?

 

An increase in churn rate value means that your organization is not performing well, or there is some aspect of your product that needs improvement. So, here is a list of things that one needs to pay attention to – 

 

1. Figuring out why Customers Left

It is important to know why your customers are leaving. Sometimes, it may happen that the services rendered by your organisation is no longer needed by that customer – which is understandable. But, sometimes, it may also happen that they couldn’t find what they were looking for. There is also a door that says your product was not performing well, which is why the customers left. Either way, it is of utmost importance to know why your customers left or are leaving so that you can overcome the shortcomings.

 

2. Providing 24-hour Customer Support

Imagine a situation where your customer encounters a minor issue that can be solved by any of the members of your organization; but, no one is available to address this issue. . What happens then? There are high chances that they might leave. The best option is to give your customers 24-hour support to avoid this situation. This way, they can always reach out to you for any confusion or error whatsoever. 

 

3. Reflecting on the Issues

Knowing the number of customers that are leaving your organization and finding the reasons for them to leave your organization is not sufficient until you act on it. If there is an issue with your product, then you should be going down to the details and assessing what is wrong. This eventually helps you in increasing your Revenue and not to forget, rectifying one’s mistake helps in customer retention. 

 

Another important factor that affects the churn rate and revenue rate is the billing solution provided by many organizations. Sometimes, customers have to go over and beyond to just use one product; they might do it once, but doing it on a monthly basis is a pain. This is why every organization should opt for billing platforms that can provide multiple payment options so that the customers don’t have to experience any issues. Start exploring Muvi Billing – a billing platform that provides 17+ payment gateways and has smart record-keeping features that automatically store all the transactions ever happened on your website. It provides 24-hour customer support in not just one language but many languages. Take the 14-day free trial now. 

 

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kritika
Kritika Verma is an Associate Content Writer and works with Muvi Marketing Team. She is an inbound marketing professional and ensures high-quality traffic on the Muvi website through her blogs, articles, and more. She has an engineering background but always had a knack for writing. In her free time, she is either on Quora or on chess.com (Mostly losing).

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