Businesses across all industries analyse customer data to uncover insights about the health of their business – from the effectiveness of their marketing and acquisition efforts, to the stickiness of their products and services. Monitoring performance metrics can determine if there are inefficiencies or weaknesses at any stage of the customer journey.

Companies commonly refer to the churn rate metric when monitoring overall business health and potential problems with their customer-retention efforts. While businesses can measure churn in different ways and across a variety of time periods, monthly churn is a standard measurement for many businesses – particularly those that offer monthly subscription products or services. Here's what you need to know about monthly churn and the insight that it yields.

What's in this article?

• What is churn?
  
• Churn rate time frames
  
• How to calculate monthly churn rate
  
• What is monthly churn rate most useful for?
  

What is churn?

Churn refers to the percentage of customers who stop using a business's product or service during a specific time frame. For many businesses, keeping this percentage low is a primary goal, given that acquiring new customers generally costs more than retaining existing customers. A Yieldify survey of leading e-commerce businesses, conducted in July 2020, found that 58% of respondents focused website personalisation efforts on retaining customers, compared with 45% who focused on recruiting new ones.

A high churn rate can indicate customer dissatisfaction and signal problems with the business's product, service or customer service. Conversely, a low churn rate can suggest that customers are satisfied and are remaining loyal to the company. Monitoring churn rate – and taking steps to reduce it – can help with maintaining consistent revenue and growth.

Churn rate time frames

The time frame used to calculate churn rate varies by industry and business model. Each churn calculation can tell you something slightly different about the health of a business and its customer-retention efforts. Here's a deeper look into the commonly used time frames for churn.

Daily churn

• What type of business uses it
  Businesses that experience high-frequency interactions with their customers often need to monitor daily customer activities and trends, including metrics such as daily churn. E-commerce websites, for instance, facilitate a large number of daily transactions. Similarly, mobile applications – especially in sectors such as gaming – may benefit from analysing fluctuating customer engagement on a day-to-day basis.
  
• Benefits
  Calculating churn on a daily basis allows businesses to immediately identify and address any concerns that might cause customers to drop off. Businesses can take a swift approach to devising and applying solutions, potentially avoiding larger losses.
  
• Drawbacks
  While daily churn provides an immediate insight, it can also introduce volatility and may cause undue alarm over short-term fluctuations that won't translate into long-term trends.
  

Monthly churn

• What type of business uses it
  Monthly churn calculations are frequently adopted by subscription-based models, such as monthly magazines, music- or video-streaming platforms, and SaaS platforms, which bill on a monthly cycle.
  
• Benefits
  Monthly churn strikes a balance between immediacy and long-term insight. This time frame provides enough data to spot trends and it can help businesses with short-term planning by indicating the most recent performance.
  
• Drawbacks
  For businesses with less-frequent customer interactions, monthly evaluations might not provide a full picture and can miss some more subtle long-term trends.
  

Quarterly churn

• What type of business uses it
  Quarterly churn evaluations are favoured by organisations that structure their performance reviews every three months. This includes many larger corporations and enterprises.
  
• Benefits
  Quarterly churn gives a wider perspective on customer behaviour, allowing for more strategic and long-term planning. This time frame can also provide more context for any short-term volatility seen in daily or monthly measurements.
  
• Drawbacks
  While quarterly churn offers a broader view, these evaluations might be too infrequent for businesses that require rapid adjustments based on customer feedback.
  

Annual churn

• What type of business uses it
  Annual churn is a useful metric for businesses that have long-term contracts with their customers or for industries where transactions and interactions are not as frequent. This includes sectors such as the property market, luxury goods or certain B2B service providers.
  
• Benefits
  Annual churn offers a comprehensive view of the business's health over an extended period of time, enabling long-term strategic decisions and goal setting.
  
• Drawbacks
  Only reviewing churn once a year means that the issues behind it may go unnoticed and unaddressed for longer periods, potentially leading to larger losses over time.
  

The time frame for churn analysis should align with the nature of the business and its strategic objectives. Reassessing and possibly adjusting this time frame on a regular basis can help businesses get a clearer picture of their customer retention challenges and successes.

How to calculate monthly churn rate

Monthly churn rate is the percentage of customers who discontinue their association with a business within a given month. Many businesses benefit from calculating this metric on a regular basis, particularly those with subscription-based operations. Here's the basic data that you need to collect to calculate churn.

• Beginning-of-month customers: the total number of active customers at the beginning of the month.
  
• End-of-month customers: the total number of active customers at the end of the month.
  
• New customers: the total number of customers added during the month.
  

Here is the formula to calculate monthly churn rate:

Monthly churn rate = (number of customers lost during month ÷ number of beginning-of-month customers) x 100

Take the following steps to fill in this formula:

• Identify the number of customers who left:

  • Subtract end-of-month customers from beginning-of-month customers.
    
  • From this figure, subtract the new customers acquired during the month. This will yield the total number of customers who left during the month.
    

• Determine the monthly churn rate:

  • Take the number of customers who left and divide it by the number of beginning-of-month customers.
    
  • Convert the result into a percentage for easier interpretation by multiplying by 100.
    

What is monthly churn rate most useful for?

Monthly churn rate is one of the most widely used business metrics, especially for organisations with subscription-based models. It represents the percentage of subscribers or customers who discontinue their subscriptions or stop doing business with a company during a given month. By examining the monthly churn rate in more depth, we can understand its relevance, advantages and applications.

Relevance in different business models

• Subscription-based services
  Businesses such as magazines, streaming services and professional membership-based communities all rely heavily on consistent customer renewals. Given that they usually bill on a monthly cycle, evaluating churn on the same monthly basis aligns with their operational model.
  
• Software-as-a-service (SaaS)
  SaaS companies, especially those that offer monthly subscription plans, monitor their monthly churn rate closely. It helps them to identify any potential problems in their products or services, or any issues with general customer engagement and satisfaction.
  
• E-commerce and retail
  Although daily churn is relevant for e-commerce, looking at monthly churn provides insights into longer-term buying cycles and the seasonal behaviours of customers.
  

Advantages of monitoring monthly churn

• Short-term trend identification
  Monthly churn allows businesses to detect and respond to changes in customer behaviour promptly. If churn spikes in a particular month, they can take immediate action.
  
• Operational alignment
  For businesses that operate, bill or report on a monthly basis, analysing churn over the same duration ensures coherence in performance metrics.
  
• Seasonal insight
  Monthly analysis can help businesses discern patterns related to specific times of the year, such as a winter dip in sales for a swimwear brand or a festive-season spike for streaming services.
  
• Balance between granularity and overview
  Where daily churn is too volatile and annual churn is calculated too infrequently, monthly churn provides a balanced perspective that captures recent trends without getting lost in day-to-day noise.
  

How monthly churn is used for decision-making

• Customer feedback and product improvements
  If there's a noticeable increase in churn for a specific month, businesses can check whether it's related to a recent product update and pivot quickly.
  
• Budgeting and forecasting
  Monthly churn insights can be instrumental in financial planning, helping businesses to forecast revenue, adjust marketing spend and allocate resources for customer-retention efforts.
  
• Marketing and promotional campaign analysis
  After rolling out a new marketing campaign, businesses can use the monthly churn rate to evaluate its impact. A decrease in churn can indicate a successful campaign, while an increase might suggest the opposite.
  
• Targeted retention efforts
  By analysing the profiles of customers lost to churn in a particular month, businesses can create targeted retention or win-back strategies for similar at-risk customers in subsequent months.
  

Monthly churn rate can be the optimal metric to track for businesses that don't want to focus on the short-term volatility measured by daily churn or the longer-term trends measured by annual churn. Regularly monitoring the monthly churn rate can help businesses to recognise patterns, refine decisions and develop strategies for customer retention and satisfaction.