Decide on which formula to use and calculate the amount of customers canceling their subscription/product over a period of time
The first component of churn is “number of churned customers” => the absolute number of customers that, during the timeframe, no longer pay for your solution
The second component of churn is “total number of customers” => the absolute number of customers that, during the timeframe, are still paying for your solution
The base formula for churn is the number of churned customers / total number of customers but there are many different possible variations:
- Simple: number of churned customers / total number of customers per 1st/31st of the month
- Simple Average: number of churned customers / total number of customers per midpoint of the month
- Expanded Average: number of churned customers / average customer count between days 1 and 30(31)
Create a spreadsheet to calculate your churn over time and create months as columns and rows for each your formula metrics.
Source: provided by author
Based on your churn rate formula chosen, fill in the spreadsheet and use cell linking to have it automatically fill values for you (to avoid making typing errors or calculation mistakes).
Look at the churn rate and ask yourself questions such as:
- is the churn rate stable over time, declining or increasing?
- do I notice a particular month with a high or low churn rate and why?
- do I need to further segment my churn calculation by other dimensions (such as plan type, billing period, etc.)?