Churn Rate in Business
Formula, Types and Solution
Are you struggling with your customer churn rate? This metric is essential to businesses who operate with a subscription based or recurring revenue model, so when your customers churn it has a lasting impact on your bottom line. Understanding your churn rate and why your customers are choosing to leave your business is crucial to your customer retention strategy. By regularly monitoring this metric, you will be actively setting your business up for long term success and sustainable growth.
In this blog we’ll share what a churn rate is, types of churn, how it compares to your growth rate and some formulas to calculate it. Then we will share some strategies and products to reduce your churn rate in order to support your business in long term growth.
What is the Churn Rate in Business?
In business, your churn rate refers to the number of customers you have lost during a given time period as they have stopped doing business with your company. This is sometimes known as the rate of attrition in business school courses. Typically, this is seen as the percentage of customers who have discontinued their services with your business. Your churn rate can also measure the amount of employees who have left your company during a specific amount of time. This is typically measured monthly, quarterly or annually. For a company to maintain sustainable long term growth, your growth rate must be larger than your customer churn rate.
Customers churn in business for a variety of reasons and you may not always know why they have decided to leave your business. Your customers may leave on purpose, or sometimes it is by accident and they don’t even know that they have stopped your services. This is the difference between direct and indirect churn rates. Direct churn refers to customers who have left because they are not happy with the services they have received, they have for a cheaper alternative or no longer need your services. Indirect churn refers to customers who have left without any notice due to failed payments or business failures. When possible, traditional tracking of why your customers are churning provides more detailed insights to what your business needs to change.
Each industry will have its own standards regarding what is and is not acceptable for churn rates. It is essential to only compare your churn rate to those in your industry, as these rates vary substantially across industries.
So, why does your churn rate matter? Well, it matters because a high churn rate has a negative impact on profits and business growth. In industries where there is a variety of providers who offer similar services, your churn rate becomes especially important to your business.
Churn Rate vs Growth Rate
While your churn rate will track how many customers your business has lost, your growth rate is able to track how many new customers your business has acquired. With this data you are able to compare your new subscribers to the loss of existing customers in order to evaluate your growth rate vs churn rate. This is important because with the difference between these two numbers, you can see if there was business growth or loss during a specific period of time.
If your business saw a higher growth rate than churn rate during a given period, the company grew. But, if your churn rate was higher than your growth rate that means that your company saw a loss in customer retention.
Our Tip : It’s really important to pay attention to your customer acquisition costs. If your customers are churning before you are able to earn back the money invested in their acquisition, then you will face significant issues. Your customer acquisition costs may not be sustainable for your business.
Companies must pay attention to their growth rate in order to ensure that it is higher than your churn rate or you will see a decline in revenue.
Churn Rate Vs Growth Rate Comparison
Feature / Factor | Churn Rate | Growth Rate |
Definition | The percentage of customers or revenue lost over a period | The percentage increase in customers or revenue over time |
Indicates | Customer dissatisfaction or product-market fit issues | Company expansion, retention, or customer acquisition success |
Formula | (Lost Customers ÷ Total Customers at Start) × 100 | (New Customers ÷ Total Customers at Start) × 100 |
Impact | Negative: Reduces revenue, signals potential risk | Positive: Increases revenue, reflects business health |
Goal | Minimize it as much as possible | Maximize it while maintaining quality |
Typical Use Cases | SaaS, subscription services, memberships | Startups, user acquisition campaigns, scaling businesses |
Relation to Retention | Inversely related: Higher churn means lower retention | Often directly tied to customer acquisition or referrals |
Benchmark | <5% per month is considered healthy for many SaaS businesses | Varies: 10–20% monthly is strong for early-stage startups |
How to Calculate Churn Rate in Business?
The churn rate formula is as follows.
The amount of customers lost in a period divided by the customers at the beginning of a period = your churn rate.
It is crucial to keep track of your customer numbers in order to calculate churn rate accurately. Picture this, you began the month with 12,000 customers and added 3,000 new customers during the month. Would you choose to divide the 14,000 customers from the beginning of the month including the 1,000 customers who quit (total customers at the start of the month, with the addition of 3,000 and the subtraction of 1,0000) or would you divide 15,000 (total customers at the end of the month) or 12,000 (total customers regardless of other factors)? These changes in calculations could lead to a 10%, 11% or 12.5% churn rate.
Churn rate calculations may seem easy, but knowing how and why you are using the data that you do is essential to calculating and recording an accurate churn rate. Another factor to be aware of is deciding when to calculate user churn in business as there are two options. Do you calculate churn when your customers’ subscription ends or from the moment that they cancel their subscription? If you calculate churn rate the first way, then it will be impossible to tell in the data if customers cancel their subscription in the first month they have subscribed. This could lead to significant issues for your business.
Advantages and Disadvantages of the Churn Rate in Business
As a company, calculating your churn rate has many advantages as it uses data to show how well your business is at retaining customers. This can be used as a reflection of the quality of service that your business is providing customers as well as how useful customers are finding the products you offer.
If your business is regularly seeing an increase in churn rate month over month, this can be a sign of a flaw in your business strategy. The most like problems are :
- Issues with your products
- Bad customer service
- High costs
Aspect | Advantages of Using Churn Rate | Disadvantages of Using Churn Rate |
Customer Insight | Helps identify if customers are leaving quickly after sign-up or purchase | Doesn’t explain why customers are leaving without deeper analysis |
Business Health Indicator | Acts as an early warning sign for declining customer satisfaction or product fit | May give false alarms if churn is seasonal or due to external factors |
Simplicity | Easy to calculate and understand across teams | Oversimplifies complex customer behaviors (e.g., loyal vs. one-time users) |
Benchmarking | Enables comparison with competitors in the same industry | Industry benchmarks may not reflect your specific customer journey or model |
Revenue Forecasting | Assists in projecting future revenue and customer base size | Doesn’t account for changes in pricing, upselling, or customer lifetime value (CLV) |
Retention Strategy | Highlights the need for improving onboarding, support, or value delivery | Focuses on lagging indicators rather than predictive or proactive metrics |
Actionability | Can trigger initiatives like loyalty programs or product feedback surveys | May distract teams from improving overall growth metrics like expansion revenue or activation |
All in all, measuring your churn rate is a great way to begin tracking your metrics. While it does not provide an all inclusive look at what is happening, this is a great way to understand the basics of what is happening in your business.
How to Reduce Customer Churn in Business?
The best place to start when trying to reduce your customer churn rate on your own is to look at what the data tells you, there may be issues with your pricing, products or customer service. If you believe your issues are regarding pricing, do some market research to see what your competitors are charging for similar services. If your issues are with your products, finding solutions in a timely manner is a great churn prevention technique. Finally, ensuring that your team is filled with strong customer service members is crucial to offering your customers the best experience.
If your business is still struggling with an increased churn rate after trying these methods, don’t worry, there are a variety of tools on the market to improve this. We recommend trying this suite of AI tools in order to fix this issue. In this case study, this company had a great customer base, but was not optimizing their customer acquisition costs, as they were not maximizing the purchasing potential of their current customer base. Instead of going out and paying for more new customers, Leightworks decided to implement this customer lifetime value tool in order to increase their revenue without any new customer acquisition costs. This tool led to a 27% increase in year over year sales by maximizing their exciting customer base.
Check out the increase Leightworks saw!
All in all, the churn meaning in business refers to how many customers your business is losing each month. By tracking your data and implementing these tools you will be able to not only understand the churn meaning in business but you will also have the tools to fix these issues as well.
Average Churn Rate by Industry
In business, your churn rate has a significant impact on your bottom line, especially in subscription based companies. Although, the average churn rate by industry differs significantly. Knowing these differences is essential to understanding if your business is where it should be or if it needs some work.
Churn rate varies by industry and by page type on your website. Blog pages will have a higher churn rate than product pages due to the nature of the information they provide.
Wholesale : 56%
The wholesale sector is often the worst for churn rate. Customers have minimal barriers to change and B2B businesses are always looking for the best deals. As the supply chain was distrusted, it became even easier to change wholesalers.
Packaged Consumer Goods : 40%
Since the pandemic, these numbers have spiked from their historic low of 10% to 40%.The likely cause for this was customers trying new products during supply shortages. These shortages gave customers the freedom to explore the products that are a better fit for their needs.
Logistics : 40%
With a higher churn average at 40%, logistics has to deal with many moving parts that keep businesses busy. As AI allows logistics companies to automate tasks and save time. But, technology alone does not create a good customer service experience.
Telecommunications : 31%
During the pandemic, telecommunications was able to hop on the new remote working world that needed solutions fast. This industry is typically filled with customers who do not churn often due to the perceived hassle.
As the industry grows, the churn rate is likely increasing due to more competition. When customers have more options they are quicker to leave when unhappy.
Professional Services : 27%
Each year consulting firms continue to grow as companies continue to look for personalized approaches over generalized solutions. In order to reduce these rates it will be crucial to focus on the unique needs of customers.
When churn is almost ⅓ of your annual customer base, consistent adaptation is crucial. Try using an A/B testing tool to see what is and isn’t working.
Financial Services : 19%
Historically, financial institutions have not had the best reputation in terms of customer service. During the pandemic this dropped even lower, but it seems to be improving now.
Banks continue to advance technology while leaving their customers behind. Changing this is essential to reducing churn rate.
Industry Service : 17%
As companies had to adapt new approaches during the pandemic, industry services have shifted. When product slows, so does business growth so this industry typically sees minimal turnover.
New industry services approaches have been gaining traction as the different impacts of the system to create tangible goods is being optimized.
Computer Software : 14%
Software companies proved how crucial their services are to the world when an influx of new businesses needed to create only delivery models. These digital first trends seem to be here to stay. The average SaaS churn rate is low.
Industry growth has led to more opportunities for software companies to grow their offering and businesses. Although increased competition may lead to higher churn rate in the future if customer service can not keep up.
IT services : 12%
IT is an additional industry where customer churn rate is lower than average at 12%. This is a competitive space, but B2B businesses often have lower churn rates due to the challenges regarding cancelling and business interruptions.
These trends are likely to continue as IT becomes more indispensable than ever post pandemic. The increase in cloud computing and managed services could be a reason that these trends are taking place.
Energy / Utilities : 11%
In the energy or utility sector, your business should begin to worry if your customer churn rate is much higher than the industry average of around 11%. These customers are less likely to churn as energy contracts usually last longer and there are minimal customer interactions when compared to other sectors.
Although, this is highly dependent on if your state has a regulated or deregulated energy supply.
What are the types of churn in business?
In business, there are over 6 different types of churn. Today we will be discussing the most common types.
Voluntary Churn – This is the most common type of churn that takes place for businesses. This happens when a client chooses to terminate their contract with your business. This could be for any reason from financial issues, lack of customer support or if they are unhappy with the service. Just because a customer voluntarily left does not mean you need to reach out and ask why but if it is a consistent issue consider an exit interview.
Involuntary Churn – Involuntary churn takes place when your business decides to stop working with a customer for one reason or another. This could be anything from fraud, consistent payment issues or no customer contact during contract renewals. There are systems that can be implemented into your business to ensure that this is not continuing to happen as it impacts your true customer acquisition cost.
Logo Churn – This is actually just another way of saying customer churn. This is a specific measure that tells you how many customers have been lost in percentage.
Revenue Churn (Gross Churn) – This type of churn is not about a lost customer, but a customer who has not completely left your business, but they have downgraded their services. This means that you have lost revenue without losing a customer. A time you may see this happening is when a customer who had a complex package decides to downgrade it to a basic package. Your business has lost money, but has not lost a customer, yet.
Early churn – Early churn happens when a customer prematurely leaves your business just a few days after the sale has been made or the contract has been signed. In order to minimize these occurrences, make sure to have a good customer service and success team that focuses on following up with new customers. This improves the customer experience while minimizing early churn. Another reason this may be happening is if your customers are waiting a long time for their solutions to take effect.
Negative Churn – Contrary to what it may seem, negative churn is actually a good thing. When churn is negative, this means that your revenue has increased and you have not seen any cancellations. This means that your current customers have upgraded their plans.
Top 5 Reasons for Customer Churn (How to Identify Them)
The reasons for customer churn will vary business by business, but these are the most common reasons for customer churn and how to spot them.
1.Acquiring the wrong customers
As more and more businesses begin to use customer acquisition tools and target customers online but then your product isn’t what they were expecting. That doesn’t mean that you don’t have a good product, but it means that you need to work on your marketing. It’s crucial to understand why your customers are churning so you know what language or strategies need to be adapted. Asking questions like what problem are you trying to solve is a great way to know if your business can offer the fix that they need.
2. Not the desired outcome
Your customers are purchasing your products because of what you have promised it can do for their business. If your products aren’t able to provide the results that were promised, they’re going to leave and find someone else who can. Customer service is essential as more often than not customers will churn before your product can show success. But, if they never knew how to use your products in the first place, would they have been able to learn? The easiest way to fix this is by improving your customer onboarding process.
3. Bad customer service
Even if you have the best product there is around, if your customers don’t know how to use it and don’t have anyone to teach them how you’ll have some issues. Any issue that keeps your customers from doing business needs to be addressed quickly, and when your customers can’t get a hold of you instead of an online knowledge base they are more likely to churn. The only way to fix this is to prioritize your customer service.
4. Competition
Your customers only care about what they need. So, even if you have the best product ever, your customers need to believe that you do too or they will churn. When they leave your losing more than revenue, but your also giving your competition some inside insight to what’s wrong with your product. To keep up with this make sure that you focus on what makes your business different, and keep a watchful eye on your competitors.
5. Weak value proposition
Businesses regularly audit their budgets in order to keep things running smoothly. While a company is ready to spend on a product that offers them a helpful service, they are quick to part with unnecessary costs. This leaves your business needing to prove its worth. In order to do this, you will need to show how your business is an essential part of their business.
Common Mistakes When Measuring Churn Rate
It’s hard to predict why customers are churning from your business, especially when no one is telling you why they are unhappy. Most unhappy customers won’t make a complaint. Using tools like the customized dashboard allows you to predict why customers are churning and A/B test your solutions.
Some common mistakes that happen when measuring your churn rate. In your business, you probably have that one customer who loves everything that you do. When measuring your churn it’s always important to see how they are feeling. Because if they have a problem, its probably a big one. Another common mistake is a bad onboarding process. If your customers never learned how to use your tools, than they’re likely not going to stay around for long.
Other mistakes include not tracking your users who are disabling your integrations. If an increasing number of customers are doing this, your product likely has an issue that needs to be fixed. Finally, one of the biggest issues is looking at your churn on random occasions and assuming that because it is high today that it has been all month. Inaccurate tracking happens more often than you may assume so be sure to keep track, accurately.
Goal: Prevent misinterpretation and bad metrics.
Conclusion
In conclusion, your churn rate has a significant impact on your business that should not be ignored. Without being aware of this metric your customer acquisition costs could be much higher than expected. It’s important to regularly monitor your churn rate and growth rate in order to ensure that your business isn’t about to see a surprise dip in revenue.
Once you’ve achieved a desirable churn rate, it’s important to maintain your efforts to ensure that the rates don’t keep back up again. If you’re looking for a tool to reduce your churn rate, we suggest this customer lifetime value tool, not only can this product reduce your churn, it also increases revenue from your existing customers.
FAQ
What does a 20% churn rate mean?
This depends on your industry, for example, if you are in the utilities industry this is a bad churn rate. On the other hand if you are in the wholesale business this is great. Check your industry average above to understand what this means for your business.
What is a good churn rate?
A good churn rate depends on your type of business. The most important part of a good churn rate is ensuring that your customers’ needs are being met. But anywhere from 5%-15% can be normal.
How is churn rate calculated?
Your churn rate can be calculated as Churn Rate = (Customers Lost / Total Customers at the start) x 100.
What is the difference between churn rate and turnover rate?
Churn rate and turnover rate are often used interchangeably for one another in a business setting.
What is the difference between churn rate and retention rate?
Your churn rate refers to the amount of customers lost. Retention rate refers to the number of customers who remained with the company during the same time period.
What is the churn rate formula?
The churn rate formula is : Churn Rate = (Customers Lost / Total Customers at the start) x 100.
What is the KPI for churn rate?
The most important performance indicator for churn rate in business is your customer churn rate. This shows you how many customers have stopped working with your business.
How to minimize customer churn?
You can minimize customer churn by accurately marketing your products, providing strong customer service and maintaining your product’s functionality as the market evolves.
How can customer churn rate be improved?
The best way to improve customer churn is to see why your customers are leaving and improve those issues. Customer experience is crucial.
Which activity reduces the risk of churn?
Anything from bad customer service, slow loading times and long wait times on product issues can all lead to increased churn.