Churn is the measure of attrition or loss over a specific period of time. While you can measure a lot of different things to calculate churn, we focus on customers (lost/won).
Here’s how we calculate it: Churn = Lost Customers @End / Total Customers @Beginning
We express churn as a ratio, which is the inverse of your renewal rate. For example, an 86% renewal rate is equivalent to a 14% churn rate.
Churn can be used in a variety of ways to inform business decisions, such as:
- Assessing the value your customers are attributing to your product (more churn = less value)
- Calculating Customer Lifetime Value calculations
- Projecting revenue and cash flow
Churn is a good measure for optimizing pricing, product, promotions and other decisions that maximize revenues and business performance.
To truly understand the importance of measuring churn, check out this post by Tom Togunz: Why negative churn is such a powerful growth mechanism.