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Q&A Session: Churn Rate

Q: What is Churn Rate?

A: Churn (rate) = the percentage of customers who stop doing business with an organization over a defined period of time.

Example: If you sell your service to 100 companies in a year, and by the following year, only 50 of those renew their business with you, then your churn rate for that 12 month period of time is 50%.

A more specific definition would be:

Customer Churn Rate = number of customers lost in period / total number of customers at start of period.

Q: Is the period of time important - meaning, is it always measured in a 12 month period of time?

A. It is very important. The most commonly examined number for investors would be a 12 month period, as that represents a good picture of a complete contract cycle. However, depending on the product/service sold, other time periods can be super useful for understanding churn.

For instance, if you sell 100 customers, and 50 don't renew, sometimes measuring that in shorter time periods is necessary because the service or product is provided without a 12 month contract - eg a monthly subscription service.

It is also Super useful in understanding how soon into a contract cycle a customer is essentially churning. Even though the actual renewal and "churn" happens when the contract ends after 12 months, it could be that customers are "quitting" within the first three months. You would want to know this because it would tell you some idea of what is causing the problem and how to solve it.

Q: What are the top 5 predictors of churn (in a technology company, for instance)?

A: Context always matter, and answers on this can vary some based on what you sell. However, a few common predictors are:

  1. Customer Engagement & Usage Patterns

    1. Low or declining usage of your product.

  2. Customer Satisfaction & Feedback

    1. negative feedback

    2. Low CSAT scores or other CX metrics (NPS, etc.)

  3. Changes in Customer Behavior

    1. Decreased engagement by customers

    2. Reduced transaction or data volumes

    3. Changes in purchasing patterns

    4. Changes in communication tones

  4. Product or Service Fit

    1. Customer feedback on product

    2. Support tickets

    3. non-traditional, non-optimal uses of product

  5. Customer Support Interactions

    1. Frequency/volume of customer support tickets

    2. Unresolved community/forum posts and support tickets

    3. Negative Support interactions

    4. Reduction in responsiveness or engagement with support

Q: What does churn rate really tell you - ie, why is it important?

A: This is a particularly important measure for SaaS and other subscription based companies because renewals and multiple years of service is critical to the whole financial model of SaaS companies. Churn is THE critical renewal metric for measuring the value of your product and/or service to the market.

What else do you want to know and understand about churn? Give us your feedback!

Also, if you want to learn more about how to design, build, and maintain a process for predicting, managing, and understanding churn in your company, reach out. We'd be glad to assist.

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