Churn is nothing but lost money or lost customers
Customer churn — the number of people you have lost.
Revenue churn — the amount of revenue you have lost.
i.e. Customer churn = customers lost Revenue churn = money lost.
Churn is the number or percentage of subscribers to a service that discontinues their subscription to that service in a given time period
Example:-
You have 100 subscribers to a SaaS product: if 10 customers cancel their subscriptions on a given month,i.e 10% churn rate.
CUSTOMER CHURN
Customer churn (also known as “Logo Churn”) measures the rate at which your customers cancel their subscription to your service.
Formula :-
Customer Churn Rate=
Customer Churned in Period(t)/Total Customers at Start of Period(t)
Example:-
we have ended January with 20 paying customers, and in february, we had lost 2 customers (i.e 2 customer churn)
Jan= 20 Customer
Feb = 18 Customer
Customer Churn Rate= (20-18)/20= 2/20=10%
REVENUE CHURN
Revenue churn (also known as “MRR churn rate”) is used to look at the rate at which monthly recurring revenue (MRR) is lost.
Formula :-
Revenue(MRR) Churn Rate=
MRR Churned / Last Month MRR
Example:-
Same example as above with $200 MRR
Jan= 20 Customer = 20*$200= $4000 MRR
Feb = 18 Customer=18*$200= $3600 MRR
Revenue Churn= (4000-3600)= $400
Revenue Churn Rate= (4000-3600)/4000= 400/4000=10%
Customer churn tells you how good you are at retaining customers.
Revenue churn tells you how good you are at retaining customer revenue.
Looks like both metrics are similar, but they are not the same
The above examples we have calculated are taken on the same $ base price : 10% customer churn resulted in 10% revenue churn. But in reality though it could not be the same , because we have different packages / different prices based on the product and customers.
NEGATIVE REVENUE CHURN
Let’s take an another example :-
We have 3 customers, each paying $200 per month. In January, our MRR looks like this-
Jan = $200+$200+$200 = $600
We lost one customer in FEB , so now MRR looks like
Feb = $200+$200 +$0= $400
But we were able to upsell our 2 customer with $150
So now MRR looks like
Feb = $350+$350 +$0= $700
Now Let’s looks at our calculator
Customer Churn = (3-2)/3= 33%
Revenue Churn= (600-700)/600 = -17% This is called a negative Revenue Churn.
Conclusion – Even though we have lost our 1 customer ( 33% of customer churn) and on the other hand we have negative churn because of upselling on our existing customer.
Feel free to add your opinion and feedback to comment section.
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About Me:-
I am Om Prakash Singh – Data Analytics Consultant , Looker Consultant , Solution Architect .
I am Highly analytical and process-oriented Data Analyst with in-depth knowledge of database types; research methodologies; and big data capture, manipulation and visualization. Furnish insights, analytics and business intelligence used to advance opportunity identification.
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