When retention fails, you churn, i.e., lose customers.
Why it matters: In any business you want to make sure that you are adding customers faster than you are losing them and at the right Customer Acquisition Cost.
- Sometimes churn is good because your product isn’t for everyone! It is better to let them go than to keep supporting them or serving their needs.
Types: E-commerce businesses will measure transaction churn. In contrast, Subscription businesses will measure two forms of churn:
- Customer Churn in a specific period (say a month) is the number of customers lost divided by the number of customers you had at the start of the period. Use this if you have only one Pricing Tier. However, if you’ve more than one Pricing Tier, then you should calculate revenue churn or visualize churn by customer cohorts.
- Revenue Churn in a specific period (say a month) is the total revenue on the first day of the period minus the revenue from the same customers at the end of the period minus any value from Upsell. We need to subtract the upsells because they hide loss from churned customers.
Challenges: Churn is a delayed backward looking and you cannot get a live number.
Examples. Everyone has faced challenges with churn: