Churn Rate (Simple)

Churn rate is the rate at which you lose customers or revenue within a time period, usually monthly or yearly. You can calculate churn rates based on your customer count or recurring revenue. Exclude new customers or new recurring revenue won during the period.

Churn Rate Based on Customer Count

Churn Rate Based on Customer Count =# of Customers Lost in the Period
# of Customers at the Start of the Period

EXAMPLE: 

You want to calculate your monthly churn rate in January.

  • Your business entered January with 900 existing customers.
  • You acquired 50 brand new customers in January. (Note: This does not count towards your monthly churn rate for January.)
  • Exiting January, you lost 30 of the 900 existing customers.

Your monthly churn rate for January is 3.33% (30 lost customers ÷ 900 existing customers).

 

EXAMPLE:

You want to calculate your yearly churn rate for 2019.

  • Your business entered January 2019 with 500 customers.
  • You acquired 250 brand new customers in 2019. (Note: This does not count towards your yearly churn rate for 2019.) *
  • Exiting December 2019, you lost 150 of the 500 existing customers.

Your yearly churn rate for 2019 is 30% (150 lost customers ÷ 500 existing customers).

* Businesses may count “win-backs”—former customers that return as customers within a time period (i.e. 12-24 months)— as a renewed customer. In that case, it would be possible to have a negative churn rate.

Churn Rate Based on Recurring Revenue

Churn rate based on recurring revenue also includes price changes, upsells, and downgrades.

Churn Rate Based on Recurring Revenue =Recurring Revenue Lost in the Period
Recurring Revenue at the Start of the Period

EXAMPLE: 

You want to calculate your monthly churn rate in January.

  • Your business entered January with 900 customers. Let’s say they have an Average Revenue Per User/Unit (ARPU) of $30. That means you entered the month with a Monthly Recurring Revenue (MRR) of $27,000.
  • Exiting January, you lost 30 of the 900 existing customers. Let’s say those were some of your higher-paying clients with an ARPU of $40. That means you lost $1,200 of MRR.

While your monthly churn rate by customer count for January is 3.33% (30 lost customers ÷ 900 existing customers), your MRR churn rate is 4.44%. MRR churn is higher than your churn by customer count because you lost your higher-paying customers ($1,200 ÷ $27,000).


EXAMPLE: 

You want to calculate your yearly churn rate for 2019.

  • Your business entered January 2019 with 500 customers and an ARPU of $20,000. Therefore, your Annual Recurring Revenue (ARR) is $10,000,000.
  • Exiting December 2019, you lost 150 of the 500 existing customers. These lost clients pay less, with an average ARPU of $12,000. Therefore, you lost $1,800,000 in ARR.

While your annual churn rate by customer count for 2019 is 30% (150 lost customers ÷ 500 existing customers), your ARR churn rate is 18%. ARR churn is much lower than customer count churn because you lost your lower-paying customers ($1,800,000 ÷ $10,000,000).