Churn rate calculation & Analysis Formula: What is it? -

When businesses consider strategies to scale their business there's almost always a prevalent emphasis on the acquisition of customers. The business is always looking for new strategies to grow their user base, attract new clients, and create new prospects. What is common to all of these strategies is a massive focus on the new and innovative, to the point that existing customers can quickly become an afterthought.

It's not to say that this strategy is either wrong or bad. There is no harm in attracting new customers since they really make a difference to the performance of your company. But what companies should not neglect is the importance of establishing long-term relationships. The majority of shoppers today are moving away from single-purchase purchases to become more long-term clients. As interest in subscription services increases, maximising customer lifetime value becomes even more vital than ever.

Continue reading to understand why your SaaS company should keep a close eye on your rate of churn and understand how focusing on retention of customers can be a great strategy to ensure longevity.

What exactly is customer churn?

Churning of customers occurs when they discontinue their relationship with your company. It can occur in either of the two ways mentioned above, by causing a churn, either intentionally or not.

Intentional churn is exactly the same as it sounds. Customers may choose to opt out of a subscription service. Intentional churn however, is more involuntary and is more natural. The card of a customer's purchase could be canceled without knowledge, and result in their subscription to be abruptly end.

Companies will tend to focus more on the intentional churn as it's most prominent of the two instances. But if your company is obsessed with maximizing the rates of churn, you'll need be aware of both situations in order to maximize your earnings potential.

How to calculate churn rate

 Churn rate formula: Number of customers lost / total # of customers you started with

For example, your software firm is currently enrolled with 300 customers. But at the end your quarter discover that 10 of your subscribers have made the decision to terminate their subscription. The churn rate of this quarter is around three percent.

(10/300 is 0.333) 100 times 100 = 3 %

This is probably the most simple calculation of churn rates available using just two variables, it is easy to calculate the rate of churn in any particular time. However, it is important to remember that this formula won't be as useful during times of massive growth. Acquiring a large number of customers in the span of a short amount of time can increase your customer base and cause the churn rate of your customers to appear as if it's decreasing. This may be misleading because there is a possibility of losing customers in this time, yet you're not aware of the fact that it's being overshadowed by the uptick in the number of customers who are new.

How to reduce customer churn in SaaS

2. Create a subscription-based model. Each interruption to your service will be an opportunity for your clients to reconsider their decision. By using a subscription-based model, your customers are now subscribers to the business you run, and are paying recurring fees to gain access to your program. Making your customers switch to a recurring billing model will allow you to continue to delight your customers with their favorite services without having to navigate the checkout process each time a new version goes live.