How to Calculate Customer Churn Rate

Before I get into calculating customer churn rate, let me make one thing clear – I am not a mathematician. I am not even a business logistics mathematician, I am just a practical, experienced SaaS marketer. Do not expect arcane mathematical formula, nor a lot of eccentric buzzwords that sound like Jurassic Park dialogue. No, I’m going to be approaching this from the side of the practical and the simple. As one should do in all of business.

Customer churn rate is a big problem for most SaaS business models, the obvious exception being purely ad-driven models which can thrive on on again/off again relationships with any given customer entity.

The definition of this churn rate is basically the loss of existing customers per cycle, and it is often a metric used in comparison to customer gains. Usually, you want your churn to be at the most half of your gain, so that at any given fiscal period, you have a net increase of profits. Status quo is a consolation prize, where it’s half and half, but here is when you start having concerns.

See, if your churn rates are this high, to where you’re maintaining status quo, or losing ground, then there is deeper issue than just your pocket book. Something is either turning customers off of your service, or competition has a heck of an edge on you. Either way, churn rates are the sign of something damning within your system, and so they are an important thing to accurately measure.

Now, how do we go about this? Well, if you were expecting some long diatribe about a thousand little metrics measured and compared in different proportions, as is the case with some things, I am afraid this time you will be fairly disappointed, or greatly relieved, one of the two.

It’s actually in and of itself a pretty simple measurement. You simply have to compare your database now, of existing customers, with the database of the last measurement, and calculate the number of customers missing from the new measurement. Here is your core number of churn. If you don’t have such a database, well … get one.

Now, this basic unit is easy to obtain, and from there, percentages of gained customers in relation to it, and all of that wonderful math you wish you’d tried harder to learn back in school. But, the there is a trick here that people often mess up, and it’s not in the measurement itself. It’s about how frequent to measure. What is your base fiscal unit going to be? Some companies do it weekly, some do it monthly, semiannually or annually. It depends on the scale of your company, in reality.

You’d think the bigger companies would need the higher frequency of measurement, but it’s in fact the opposite. Smaller companies feel units much more greatly, and so a more frequent measurement thereof is necessary. Large, great lumbering titans of business feel them on a smaller level, and so their rate is rarely necessary to be more frequent than annual measurement.

So, calculating the customer churn rate is pretty straightforward. It’s knowing how often to do so, that matters.

Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.