The Churn rate calculation is a metric used to measure the loss of a business’s customers, especially those involving subscriptions or monthly payments.
One way to calculate the Churn Rate is to use the percentage of customers or users who leave a monthly service or cancel subscriptions and registrations.
It is a widely used index of SaaS-type companies, which offer software services using cloud computing, and rely heavily on these expected monthly inputs to achieve their operating results and ensure sound financial management of the business.
Learn more: Do you know what SaaS companies are?
How to Perform the Churn Rate Calculation
Perhaps the most widely used Churn Rate calculation metric is the percentage of customers lost, which is the division of the number of customers lost in the period (usually in the month) by the total number of customers (before losing those), multiplied by 100.
So if a company has 5,000 customers paying for their software usage and it loses 300 customers in a month, their Churn Rate will be 300 divided by 5,000 times 100, which is 6%.
But there are factors to consider:
Have you gained new customers? And how does this number fit into this measurement?
You can divide the number of customers lost by the total before the losses or by the total after the customer losses, when new customers may have been acquired.
That is why a correct measurement is to use the number of customers corresponding to the last day of the previous period.
But how do you analyze these important facts regarding the gain and loss of customers?
For this, it is not enough to know how to calculate the Churn Rate, it is necessary to incorporate some other types of performance indicators, regarding the retention and acquisition of clients, and to make a joint analysis, here are some of them:
- Number of Clients Acquired
- Number of Customers Lost (Churn)
- Net Customer Gain: Number of Customers Acquired minus the Number of Customers Lost
- MRR Lost: Before we talk about MRR Lost, we need to talk about MRR, which means Monthly Recurring Revenue, which comes from subscriptions every month.
To calculate the MRR Lost, (or MRR Churn) just find the monetary value corresponding to the Churn Rate (In this case, the number of lost customers multiplied by the value of the subscriptions, if there are different plans and prices, the calculation must take this into account!) .
- The MRR Lost Rate (or MRR Churn Rate): Divide the MRR Lost by the MRR of the previous month and multiply by 100.
Note that the MRR Churn Rate may be different from the Churn Rate if, for example, there was a greater loss of customers paying for lower-cost subscription plans, impacting less on the revenue loss.
Yes, there are many indicators, and there are several others that can also be used. In this case, instead of wasting time doing calculations on paper or manually updated spreadsheets, the ideal method is to integrate processes and reliable information in real time by automating business processes.
Also see: Discover 10 Key Performance Indicators (KPIs)
How to maintain a low Churn Rate calculation
Now that you know how to do the churn rate calculation, as well as several others, we can understand how to prevent it from growing every month.
It may be related to the company’s marketing plan itself, business communication errors and even the steps of the sales process itself.
If you don’t want to lose customers, seek to keep their loyalty. For this, we always need to surprise them and use CRM techniques to have the necessary information to give them exactly what they seek to solve their problems, the right price, at the right time through the most efficient channel.
In short, a CRM system will help you to know:
- Who is buying
- What they buy
- When they buy
- How much they pay
- How they want to be treated
With this, you can perfectly deliver the product or service for each customer profile, significantly reducing the churn rate calculation over time.
But this is not enough; we must continue with after-sales support, building a customer service process that will always keep them satisfied and exceed their expectations.
Check out: How to improve customer service by improving processes?
Knowing how to calculate the churn rate is only the beginning of the business process solution in the pursuit of customer retention and loyalty.