What is Customer Churn?

Customer churn is the percentage of customers who stop doing business with a company over a certain period of time. It is an important metric for companies to track, as it can indicate the effectiveness of their products or services.  Customer churn can also be called customer turnover.

How is Customer Churn calculated?

The customer churn rate is the number of lost customers divided by the total number of customers at the beginning of the period, and then multiplied by 100 to express the result as a percentage.

customer churn formula

For example, if a company had 100 customers at the beginning of a quarter, and 10 of those customers stopped doing business with the company, the customer churn rate would be 10/100 * 100 = 10%.

Comparisons of customer churn rate are annual.  In the example above, the quarterly result is multiplied by four.

What is a churned customer?

A churned customer is a customer who has stopped doing business with a company. This can occur for a variety of reasons, such as dissatisfaction with the product or service, a change in circumstances, or the availability of a better alternative.

The measure of a churned customer is business specific.  Some companies consider a customer churned when they end a subscription.  Others may wait several months before classifying a customer as churned.

How is Customer Churn rate used by SaaS companies?

Customer churn is typically used to measure the stickiness of a product or service and to identify areas for improvement. A high churn rate can indicate that customers are not finding value in the product, or that they are experiencing problems with it, while a low churn rate can indicate that customers are happy with the product and are likely to continue using it.

What is a good Customer Churn rate?

There is no “good” or “bad” customer churn rate, as it can vary greatly depending on the industry and the specific business. However, a low churn rate is favourable.

Measuring churn consistently to ensure that it is stable or decreasing is important.

What are the benchmarks for Customer Churn?

Customer churn is difficult to benchmark as definitions vary widely by company. Net Dollar Retention is a more typical measure of customer stickiness, which is widely benchmarked.

Customer Churn visualization example

This chart is an example of customer churn rate, with year on year comparisons, making it much easier to understand trends, improvements, even seasonality.
customer churn chart

ScaleXP fully automates customer churn.  Through integrations with both your accounting and CRM systems, as well as a smart set of text recognition algorithms, the system provides a full suite of SAAS metrics.  Customers are automatically tagged as Active, New, Lost, Reactivated using your business definitions.  

Customer churn rate is just one of several important SaaS metrics, automated by the ScaleXP platform.  Read more about how the system can automate your SaaS metrics.