A: To calculate churn, choose a starting point and an end point. For example, the starting point may be today, and the end point may be a month from now. The goal is to see how many customers remain at that point in time. It’s essentially a division problem. If a company has 10 million subscribers on July 1, and 9 million subscribers on August 1, the churn rate for that period is 10 percent.
The variety of factors that can be used for calculating churn are almost endless, but all derive from the basic premise that a starting point and a future end point are identified. Beyond that, the calculation can vary. For instance, an organization might want to consider seasonality or other specifics within a time frame that could change the calculation.
Predicting churn can also introduce new considerations and often organizations will create predictive algorithms based on specific customer behaviors to see how those behaviors might affect churn.
For example, a business may look at the number of website logins as one of the factors for predicting churn. If the number of logins drops by a certain percentage, that could indicate a risk. A business could then take that information to identify customers that are at risk of churning and target them specifically.
Organizations usually have calculations to predict the number of customers or the number of subscriptions based on their churn rate or churn rate indicators, but one of the most important insights derived from a churn rate is calculating profit or revenue.
Let’s say a company that sells enterprise software gets 100 new customers in a month, but by the following month, they’ve lost 10 customers, and now have 90. That’s a 90 percent retention rate, which might not seem bad. But if those 10 customers are responsible for 80 percent of revenue, the company has lost their most important customers. The revenue impact from that churn rate is astronomical — while the customer churn rate is only 10 percent, the revenue churn rate is 80 percent. Looking at multiple different results of churn provides a more complete snapshot of the health of a business.