Customer churn rate shows how fast you are losing the customers you already won.

It matters because every customer you lose has to be replaced before you can grow.

Churn sets the pace a subscription business has to keep up with. If you lose 3 customers in every 100 each month, the first 3 new customers per 100 only keep you level.

It also sets how long a customer stays, which drives lifetime value. At 3% monthly churn the average customer stays about 33 months, which is 1 divided by 0.03.

Divide the customers you lost by the customers you had at the start.

customer churn rate = customers lost in the period ÷ customers at the start × 100
annual churn = 1 − (1 − monthly churn) ^ 12

Only customers who were there on the first day count. Customers who joined during the period stay out of both numbers, or a month of strong signups would hide the losses.

Monthly churn compounds, so it cannot be multiplied by 12. 3% a month is 30.6% a year, not 36%.

The same formula works for a quarter or a year: customers lost in that period, divided by customers at its start. To set a quarterly or yearly figure beside a monthly one, convert it with the compounding formula first, so both describe the same length of time.

You lower it by finding out why customers leave and fixing the biggest reason first.

• Split voluntary from involuntary churn. Cancellations need product and service fixes. Failed payments need billing fixes. See involuntary churn.
• Ask at the moment of cancelling. One question on the cancel screen gives you the reasons in the customer's own words.
• Look at when customers leave. Losses in the first months point to onboarding. Losses at renewal point to value or price.
• Offer annual plans to settled customers. A yearly plan has one renewal decision instead of twelve.

Some early churn begins at the very first charge: a trial that ends on a declined card is a customer lost before they started. 1Capture authorizes the first payment when the trial starts, so a card that cannot pay is caught at signup. See payment capture.

These mistakes make churn look lower than it is.

• Adding new customers to the base. Divide by customers at the start of the period, not at the end.
• Multiplying monthly churn by 12. Churn compounds: 3% a month is 30.6% a year.
• Blending monthly and annual plans. Annual customers can only leave once a year. Report the two groups apart.
• Using one number for customers and revenue. Losing a large account and losing a small one count the same here. Read it beside revenue churn rate.