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.