How to Calculate Churn Rate | Subscriptions 101
ฝัง
- เผยแพร่เมื่อ 3 ส.ค. 2024
- I show you how to correctly calculate churn rate for a subscription business. Free Excel model download included if you want to plug in your own numbers.
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In this video, we walk through how to calculate churn rate for different types of subscription businesses, the common errors people make in the calculation, and how to use churn rate to calculate your customer lifetime (a formula everyone should have memorized!).
SECTIONS:
00:17 the definition of churn rate and when it applies (only subscriptions)
1:31 when to use churn rate vs. retention rate
2:12 how to calculate churn rate (monthly) & common mistakes
4:16 how to calculate churn rate (annually)
5:31 thank you to the sponsor of this video: book a demo with Ordergroove today www.ordergroove.com/eric/
6:20 how to calculate customer lifetime using churn rate
If you have questions - leave a comment below and I'll try to help. Cheers!
#churnrate #subscription #customerretention
Questions? Let me know in the comments, happy to discuss. Also, you can always download the Excel file for free in the description if you want to take a look!
I'm trying to calculate churn rate for a new agency business. i assume that i can find 1 new client every 3 months in the first year, and one new client every month from the second year onwards. each client will sign a contract on retainer for 3 months and at the end of 3 months, renew for 6 another months. How would i calculate the churn rate for this scenario?
@@shehanmichaelfaiz4930 for that I'd probably use something more like NDR net dollar retention or just the pure customer lifetime value calculation itself
th-cam.com/video/681NLNXB95I/w-d-xo.htmlsi=CL1dwxJey8qJ2rqr
We will be circulating the 1/churn formula with our merchants! Great stuff
Glad to hear it!
Hey!
If you are open to it, I love to speak with you offline to discuss how we can potentially open up a new customer segment for you with Credit Unions and Community Banks
You've become more handsome Eric😅
Haha you are too kind 😅
Using it for a food delivery app. Just a small question. Can't churn be also included for food apps which is not subscription based, i.e the number of customers who did not order after a certain amount of days (which we benchmark for churn). for eg. Customer A ordered food on Day 1 and then for the next 6 months we did not see any order from Customer A. 6 month is our benchmark for churn.
Thanks for letting me know! I think that those could work, but I would make sure you are tracking some really specific retention metrics on top of those and generally would frame the analysis more around retention than churn when you don't have subscriptions.
For user-based businesses, I would look at DAU/MAU ratios & power user curves, I have a video on that here: th-cam.com/video/YxJFzfXk5DU/w-d-xo.html&ab_channel=EricAndrewsClips
And for the revenue side of the business, I would use cohortized revenue retention charts, video here: th-cam.com/video/OwCATJh4lNg/w-d-xo.htmlsi=2XlOVYe9UPfcbUwQ
Those both help to think more about driving retention than measuring churn.
Do you see instances where reoccurrence is more powerful than subscriptions? Example, giving a lifetime offer but since the customers are excited with the deal, the marketing is basically free.
It all just depends on your unit economics and customer lifetime value and pricing something where you make more money (gross profit) than the alternative. If you can sell a lifetime deal for 3X your current LTV (assuming you also estimate COGS accurately and it is profitable), then go for it. That obviously would only work for software-based businesses. Thinking out of the box with your discounts and incentives is key to giving your customers massive value and dialing in a super high LTV for the company, but you must analyze your unit economics on these ideas before offering them or else you're just shooting in the dark and they can backfire massively.
how to know how long 1 app user lives on average if I know the retention rate data ?
For app users I would focus on the DAU/MAU ratio and power user curves. I have a video on that here th-cam.com/video/YxJFzfXk5DU/w-d-xo.htmlsi=RSY1-Ppf-PAkq2lt
How can I calculate the churn if a customer is paying a flat fee for my service and, depending on the service, they could be an active customer for 2+ years?
@@michaelstopperich8528 so they are locked in to 2 year contracts?
@@eric_andrewsThey are locked into a contract yes, but the terms vary. Some pay the full balance of the service when they sign the agreement and others make payments for 3 to 10 months. But once the customer is done paying, its very likely they will remain an active customer for a period of time. Could be months could be multiple years.
They are locked into contracts, but terms vary. I sell Immigration Legal Services, so you could sign up for a $10,000 service, pay $2,000/month for 5 months then we send your application to USCIS (the government) to be reviewed and either "Approved" or "Denied". But its realistic we don't receive an answer of approval or denial for 6 to 12 months. This is where i'm getting stuck on how to calculate the churn.
@michaelstopperich8528 yes the thing you're getting stuck on is you are trying to use "churn rate" for a business that is not a subscription. I have a video on this here but basically i would just be focused on LTV per customer, churn only really applies to subscription businesses where people are actively canceling the service which is different
th-cam.com/video/2QY_1ATyTOU/w-d-xo.htmlsi=xr67SIQU2H0tSRsX
I aint got any business yet. So cannot calculate the churn rate. My label is my personal, not company - so I can calculate retension only for my label.
It's better to know this before starting your business than later on, and when you launch watch your metrics closely
Music school business
Oh awesome, great example