Businesses across all industries analyze 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 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 since acquiring new customers typically costs more than retaining existing customers. A July 2020 Yieldify survey of leading ecommerce businesses found that 58% of respondents focused website personalization efforts on retaining customers, compared to 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 support. 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 maintain 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. Ecommerce websites, for instance, facilitate a large number of daily transactions. Similarly, mobile applications—especially in sectors such as gaming—may benefit from analyzing fluctuating customer engagement on a day-to-day basis.
  
• Benefits
  Calculating churn on a daily basis allows businesses to immediately identify and address concerns that might cause customers to drop off. Businesses can swiftly devise and apply solutions, potentially avoiding larger losses.
  
• Drawbacks
  While daily churn provides immediate insight, it can also introduce volatility and may cause undue alarm over short-term fluctuations that won’t translate to 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 that 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 long-term trends that are more subtle.
  

Quarterly churn

• What type of business uses it
  Quarterly churn evaluations are favored by organizations that structure their performance reviews every three months. This includes many larger corporations and enterprises.
  
• Benefits
  Quarterly churn gives a wider perspective on customer behavior, 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 requiring 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 real estate, luxury goods, or certain B2B service providers.
  
• Benefits
  Annual churn offers a comprehensive view of the business’s health over an extended time frame, enabling long-term strategic decisions and goal setting.
  
• Drawbacks
  Reviewing churn only once a year means that issues causing churn might 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. Regularly reassessing and possibly adjusting this time frame 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 regularly calculating this metric, particularly those with subscription-based operations. Here’s the basic data 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 organizations 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. Since 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, closely monitor their monthly churn rate. It helps them identify any potential problems in their products, services, or general customer engagement and satisfaction.
  
• Ecommerce and retail
  Though daily churn is relevant for ecommerce, looking at monthly churn provides insights into longer-term buying cycles and the seasonal behaviors of customers.
  

Advantages of monitoring monthly churn

• Short-term trend identification
  Monthly churn allows businesses to promptly detect and respond to changes in customer behavior. If churn spikes in a particular month, they can take immediate action.
  
• Operational alignment
  For businesses that operate, bill, or report on a monthly cycle, analyzing 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 holiday 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 quickly pivot.
  
• Budgeting and forecasting
  Monthly churn insights can be instrumental in financial planning, helping businesses 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 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 analyzing 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 and the longer-term trends measured by annual churn. Regularly monitoring monthly churn rate can help businesses recognize patterns, refine decisions, and develop strategies for customer retention and satisfaction.