Importance of calculating churn rate in sales

Churn rate is one of the most important metrics that a company with recurring payment customers can calculate, and is most often expressed as a percentage of subscribers that have canceled their recurring payment plans.

Churn rate is a critically important metric for companies whose customers pay on a recurring basis like SaaS or other subscription-based companies. Churn can be powered by a number of factors, and even small month-on-month increases in churn percentage can be ruinous to planning, so understanding what churn is and how to analyze it is important.

Calculating and monitoring customer churn is important because it is far cheaper to retain customers than to acquire new ones. Studies have shown that selling to existing customers is easier than selling to new prospects. Other researches also reported that repeat customers spend more than new ones.

Churn can either be voluntary or involuntary. Voluntary churn happens when customers decide to cut their subscription on their own. Involuntary churn occurs when a subscription is canceled even if customers don’t want to. Due to the popularity of subscription business models, it’s critical for many businesses to understand where, how, and why their customers may be churning.

Churn isn’t simple and straightforward. A wide variety of factors come into play — and it differs for each set of users.

But common sources of churn include things like:

Depending on the industry, product, company, and every other element you can think of, there are many different ways to decrease churn. There are a few simple things you can do to ensure your churn rate stays low.

Churn is not only important for monitoring performance but also serves as an integral metric in forecasting and future budgeting decisions, as it can serve as a proxy for the probability of customers and revenue canceling in the future.

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