Understanding the Churn Rate metric

Churn Rate is the percentage of customers who cancel their subscriptions over a set period of time. Understanding your store’s Churn Rate can provide you with valuable insights into customer satisfaction, and is a helpful metric when planning for future growth.

Access the Churn Rate metric

1. Select Analytics in your merchant portal.
2. Select the Customers tab to access the Customers Overview dashboard.
3. Set the time period for the data using the Filters option. Once you’ve selected the correct timeframe, press Run (or the reload icon) to pull the relevant data.
4. The bottom half of the dashboard is dedicated to churned metrics, including the Churn Rate metric. 

The churn rate dynamically corresponds to the date range set within the filter. For example, if you entered the date range of October - December 2022, the Churn Rate metric provided is a quarterly churn rate, representing the percentage of customers who ended their subscription in that quarter.

Alternatively, if you enter the date range of October 2022, the Churn Rate metric would be a monthly churn rate, representing the percentage of customers who ended their subscription that month.

Accessing additional churn information

If you are using the Enhanced Analytics suite, you can also drill down into the Churn Rate metric to get a detailed breakdown of the churn calculation. With this additional information, you can obtain a list of each customer that churned in the specified timeframe, as well as the total number of days used to calculate the churn percentage.

Understand how the Churn Rate metric is calculated

Recharge gathers the following information before calculating the churn rate:

• The total number of days in the specified period.
  • • This is specified using the filter function in the Revenue Trends dashboard.
• The sum of all daily churned customers for the specified period.
  • • A customer is considered churned the day after the subscription is canceled or expired. For example, if a customer canceled their subscription on April 1st, 2022 they would be considered to have churned on April 2, 2022.
• The sum of all daily total active customers for the specified time period.
  • • Since customer churn is identified the day after the customer’s subscription is canceled, the number of daily customers is the total number of customers who were active on the previous day.

We then take those three values to calculate the churn rate using this formula:

This provides us with a churn rate that accurately reflects the percentage of customers that churned in a given time period.

Benefits of calculating churn with this formula

• With this formula, we are looking at the number of customers each day in the period, instead of only the number of new customers, so that the churn rate represents the entire growth of the business.
• Using historical data tracking, the total active customer count in the churn rate calculation is a sum of the total active customers at the beginning of each day in the time period. This normalizes your data so that it can be used to better assess your business’s growth and you can see a more robust churn rate, especially when looking across longer timeframes.
• If we were to calculate the total active customer count for the beginning, middle, or end of the timeframe, new customers may be missed. With this calculation, new customers are successfully accounted for.
• We also realize that the churn rate should not be directly influenced by the new customer count, as it can artificially inflate your data. Instead, our calculation looks at each day specifically in the time period to better account for new customer growth.
• This model allows you to compare your churn rate percentages so that you can predict the probability of future churn. With this method, you can confidently rely on the churn rate percentage as an accurate forecasting tool.

Churned customers

A customer is considered to have churned when their customer status is inactive. This may be due to active cancelations or expirations (i.e. you or the customer cancels the subscriptions, or a subscription expires after a set number of charges). Customers who are considered inactive due to a passive cancellation (i.e. the customer status is inactive due to a charge error) are also considered when calculating the churn rate.

A customer is considered to have churned the day after their last active subscription is canceled. For calculation purposes, the customer churn is recorded the day after the customer is inactive. That means if a customer canceled on July 5th at 11:00 am, they would be recorded in our database as having churned on July 6th.

Caveats

Churn is calculated on the customer level, not the subscription level.

This means that a customer must be completely inactive in order to be considered a churned customer.

For example, if a customer had 2 subscriptions on January 1st, but canceled 1 subscription on January 3rd, they would not be considered a churned customer. Similarly, if the customer canceled their remaining subscription on January 3rd, but purchased a new subscription the same day, they would never be considered a churned customer.

Churn rates excluded subscriptions automatically set to expire.

If an order is set to expire immediately after one charge, the customer is not considered to have churned, and are excluded from the churn rate calculations.

Churn events are not specific to subscription intervals.

We look across all customers and subscription purchase items to calculate churn, but we do not separate the churn rate by subscription frequency. We recommend taking the subscription frequency into account when accessing your churn rate. For example, if you have a quarterly subscription you may want to set your date filter to reflect a quarterly churn rate instead.

Prepaid subscriptions are considered churned on the last prepaid charge.

For example, if a customer purchased an annual subscription on January 1st, but canceled their prepaid subscription on February 14th, we would not wait until the last shipment on December 1st to consider the customer as churned. Instead, the customer’s status as churned would be effective after their last charge, which in this case would be January 1st.

If the prepaid subscription is set to expire after one charge, then the customer is excluded from the churn calculations altogether.