Churn Rate.

The basic formula is: customers who cancelled during the period divided by customers at the start of the period. New customers won during the period are not counted, otherwise growth masks the losses. With subscriptions and software, a cancellation is unambiguous. For businesses without contracts, such as a trades business or an online shop, you have to define when a customer counts as lost, for example after twelve months without an order.

Customer churn is distinguished from revenue churn. Customer churn counts heads; revenue churn counts lost recurring revenue. The two can diverge widely: lose many small customers but no large ones, and customer churn is high while revenue churn is low. If existing customers grow at the same time through upselling and cross-selling, net revenue churn can even be negative, meaning the customer base grows despite cancellations.

Churn directly affects customer lifetime value (CLV): the shorter customers stay, the less they bring over the relationship and the less you can afford to spend acquiring them, see customer acquisition cost. For many business models, lowering churn is therefore more effective than winning more new customers. Early warning signs include declining usage, unpaid invoices, more support requests or weaker answers in surveys such as the Net Promoter Score.

To reduce churn you need to know its causes. A short exit question with every cancellation helps, as does a look at timing (do customers leave after the first month or after years?) and conversations with customers who are about to leave. The cause often lies not in the price but in the start: customers who do not experience the benefit in the first weeks do not stay. Good onboarding and a self-service customer portal do more here than discounts.