The article about churn rate calculation shows that analyzing churn rate is critical for your successful business. This time, we will give you a rundown of multiple ways to calculate churn rate. 

One of the two most straightforward ways is to calculate the percentage of users churned in a time period. Start with dividing the number of lost customers by the initial amount of customers, then you will get the monthly or quarterly churn rate.

The second method involves estimating the potential loss of profit. This method can be used when there are minor differences of average order value and customer life value among customers. As the matter of fact, every customer you churn means a decline in revenue regardless of how strong your marketing is. This user churn means there will be revenue churn as well. The importance of user churn and revenue churn is still under debate but most agree that concentrating on the latter can yield more profit. Nonetheless, it is best to learn how to calculate both rates because it will help you operate your business more efficiently.

1. Churn rate formula

• User Churn = (Lost customers in the past month ÷ Active Customers at the month’s beginning) x 100
• Revenue Churn = (Monthly Recurring Revenue Lost to Cancellations in the last 30 days ÷ Monthly Recurring Revenue at the month’s beginning) x 100

2. The standard churn rate

When calculating your churn rate, usually you should use the data over the span of a quarter of a year instead of on a monthly basis because the monthly rate would be too small to give useful information. A churn rate of about 5-7% annually is considered the common status for businesses, which is about 0.4% each month. Most small and medium businesses, however, have a much higher rate than this but over time they will recover. So, if you are having a slightly higher number than the standard, keep a cool head and make well thought out decisions.