Churn
Learn more about common financial terms here.
Need more help? Our team is ready.
Churn
What is Churn?
Churn, also known as customer attrition, is the number or proportion of customers a firm loses over a particular period. This is an important aspect for firms, especially those working under subscription and recurring revenue models. In simple terms, churn means the rate at which a business loses customers, subscribers, or recurring revenue over a specific period.
How is Churn Calculated?
| Churn Rate = (Customers Lost During Period ÷ Customers at Start of Period) × 100 |
Let us consider that a firm has 1,000 customers at the beginning of a month, and loses 100 customers by the end. This means the firm’s churn rate that month is 10 percent.
Why is Churn Important?
- It can cost you more to acquire than retain: Generally, it takes much less effort and money to keep an existing customer than to gain a new one; therefore, even a slight decrease in your churn could positively affect your profitability.
- Churn increases with scale: At first, low churn can seem okay; however, once the number of your customers is growing, the number of those who are leaving will be greater and harder to compensate for with the help of new customers.
- Churn is an indicator of your product-market fit: High or increasing churn rates can tell you about the problems that can actually be fixed: poor onboarding process, missing features, wrong pricing, or customer expectations.
- Churn matters for investors: In particular for SaaS or other subscription companies, churn rate, together with such metrics as Net Dollar Retention, gives one of the most obvious signs of sustainable growth for investors.
- Churn must be segmented rather than only calculated as one metric: Segmentation of your churn rate by different cohorts or types can help you better understand which segments bring you the most problems.
Want Help With Your Finance and Business Operations?
Atidiv helps growing businesses streamline finance and accounting processes with reliable, technology-enabled solutions designed around their unique needs. With expertise in accounting support, financial reporting, back-office management, and process improvement, our professional team can help you achieve greater precision and efficiency across your business’s financial operations.
If you need assistance with simplifying accounting, improving your financial processes, or scaling your operations, Atidiv can help. Contact our team to see how we can help you with our finance and accounting services.