Calculating churn rate is easy until it isn’t. I won’t dive into all the nitty-gritty, but you should be aware of the following:
The formula works best when calculating churn rates on a monthly basis.
For longer periods of time, newly acquired customers who churn within the given period can skew the results. You have two options here. Disregard all churns from customers acquired during that period or add up monthly data and calculate a weighted average churn.
Consider calculating churns for some of your plans separately, especially if you target completely different market segments at the same time (e.g., SMBs vs. enterprises).
If you’re a startup, your churn rates will likely fluctuate a lot. That’s because you experience rapid growth and new customers tend to churn more frequently than those who stick around for a while. Your likely small sample size (# of customers) is also a factor here.
Your business may suffer from seasonal swings, so a higher churn rate may be natural during some months.
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But the bottom line is that no matter how you calculate your churn, you should stick with it and work on decreasing whatever the number is.
So what’s really a bad, so-so, or good churn rate?
What’s a good churn rate for your business?
If you Googled this, you’d encounter anything between 2% and 8% to be an acceptable churn rate. That’s useless information for a metric where a 1% difference could mean tons of money. On top of that, some resources don’t even mention what type of churn over how long they’re referring to.
But we need a number. It’s important to have an anchor to recognize instances when churn is a minor problem and we should, thus, prioritize achieving other marketing objectives. Fortunately, all we need here is to get more specific with Google queries.
Make a list of competitors. Google their names in combination with “churn rate” or “retention rate” (the inverse metric). Voilà: