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Set up measurement and reporting for churn rate

Use case

Reduce your churn rate and boost your retention rate.

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1. Define what you mean by active subscribers or active customers to prevent confusion in calculating churn rates.

Consider:

  • Who are your returning customers? How long does a customer have to be inactive to be considered a new customer again?
  • Do you consider those in free-trial mode as customers? 
  • What about customers with inconsistent subscription lengths?
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2. Choose the period of time over which you calculate churn. Customer churn rate is measured on a monthly, quarterly, or annual basis.

It’s important to define a churn event before calculating your company’s churn rate. For example, does a churn event constitute X days of customers not placing an order for your product or X months of customers not using your app?

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3. Track the customers who become inactive or stop subscribing to your products. Next, calculate the customer churn rate to gain insight into the health of your business.

Identify the number of customers you had over a specific time. Note the number that left over the same period. Divide the number of customers who left by the total number of customers. Express your answer as a percentage.  For example, if you had 1,000 customers and 50 customers left in a month, your churn rate is: 

Churn rate = 50/1000 X 100 = 5%

You can also calculate your churn rate using this formula: 

Customer churn rate = Customers at the start of the month – customers at the end of the month/customers at the start of the month
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4. Track revenue churn by subtracting end-of-month MRR from beginning-of-month MRR and then dividing by beginning-of-month MRR.

Revenue churn = (BoM MMR - EoM MMR) / BoM MMR

Tracking both customer churn rate and MRR (monthly recurring revenue) rate provides an accurate picture of product performance and business growth.

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5. Segment customer churn to better understand the different types of customers leaving your business.

Some common ways to segment are:

  • Cohort reporting, which looks at when customers initially signed up and what events may have led to an increase or decrease in churn.
  • MRR and Customer lifetime value (CLTV).
  • Subscription plan level or product purchased.
  • Firmographics for B2B customers, such as industry, annual revenue, and company size.
  • Demographics for B2C customers, such as age, gender, geographical location, income, and interests.
  • Lead source.
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6. Create reports on a regular basis to inform stakeholders about churn rates and predict future churn rates.

Remember, churn can also apply to revenues. Report the revenues lost due to customers failing to renew subscriptions at the end of a subscription period. Use reports to communicate what churn rates mean and the changes each team must make to reduce churn. Use data from the reports to predict future churn rates. Create a measurable plan to reduce the churn rate and boost the retention rate.

Employ binary classification to predict future customer churn. Binary classification analyzes whether the customer will leave or stay after a particular period.

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Current Playbook:

Set up measurement and reporting for churn rate

Sep 20, 2021

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