Churn rate which is also known as customer churn refers to the rate at which customers stop doing business with a company. In simple terms, it is the percentage of customers who canceled their subscription over a specific period of time. For example, if Netflix gets 1000 new customers in the sharting of the month but by the end of the month, 100 customers have canceled their subscription then the churn rate is 10%.
How to calculate churn rate:
[(Subscribers as the beginning of the certain period- Subscribers at the end of that period/Subscribers as the beginning of the certain period)]*100
Thus according to the formula:
[(1000-900)/1000]*100 = 10%
Churn rate is an important metric for all subscription-based companies because it helps you in finding out how stable your business is for the future and also helps in forecasting business growth.
Churn rate is of 2 types:
Voluntary churn rate
When the customer chooses to terminate their subscription. It is important to focus upon as a customer voluntarily chooses to eng the subscription, thus it can help you find out why, and you can prevent that from happening later.
Involuntary churn rate
It is when your business chooses to cancel the subscription of a customer in case of failed payments or there is some issue from the customer’s end due to which they are unable to pay and the subscription is stopped on its own.