To calculate churn rate, first, you need to define the time period for which you want to calculate the churn rate. This can be monthly, quarterly, or annually. Once you have defined the time period, you can calculate the churn rate by dividing the number of customers who churned during that period by the total number of customers at the beginning of the period.
For example, let’s say you have 1,000 customers at the beginning of the month and 100 of them cancel their subscription during that month. The churn rate for that month would be 100/1000 = 0.1 or 10%.
There are different types of churn rates that SaaS companies can track, including gross churn rate, net churn rate, and revenue churn rate.
Gross Churn Rate: Gross churn rate is the percentage of customers who cancel their subscription during a given period of time, regardless of whether they were acquired during that same period. Gross churn rate only takes into account the number of customers lost, not the revenue lost from those customers.
Net Churn Rate: Net churn rate takes into account both the number of customers lost and the number of customers gained during a given period of time. Net churn rate is calculated by subtracting the number of new customers gained during the period from the number of customers lost during that period, and then dividing the result by the total number of customers at the beginning of the period.
Revenue Churn Rate: Revenue churn rate is the percentage of revenue lost from customers who cancel their subscription during a given period of time. Revenue churn rate takes into account the revenue lost from customers who cancel their subscription, as well as the revenue lost from customers who downgrade their subscription.
To calculate revenue churn rate, you need to multiply the gross churn rate by the average revenue per customer.
Useful Links:
