Churn rate is the amount of customers who cut ties with your company during a given time period.
The calculation of churn can be straightforward. Take the number of customers that you lost in a period of time and divide that by the number of customers that you started with in that period of time. The resulting percentage is your churn rate. As an example, a company that started last quarter with 100 customers and lost 3 over the course of the quarter would have a churn rate of 3%. You can also calculate churn based on the number customers lost, the value of recurring business lost, or the percent of recurring value lost.
Regardless of how you choose to represent churn, tracking your churn rate is key. It’s almost always cheaper and easier to retain customers than it is to go through the process of acquiring new ones. Monitoring churn is the first step in understanding how good you are at retaining customers and identifying what actions might result in a higher retention rate
Here’s an example to think through the impact of your churn rate today on your business over the next five years:
If you have monthly recurring revenue of £15000 and that every month you add another £2000 to that. However, you have a churn rate of 3%. If all of that persists for the next 5 years, you’ll end up generating almost £2.6 million. If you’re able to decrease your churn rate by 10%, to 2.7%, that gives you an extra £100,000 in revenue. If you’re able to reduce your churn by 30%, that’s even better. Your revenue goes up to £3 million!
Based on an article by http://www.churn-rate.com/