Annual Churn Rate
Companies need to define a set of metrics for measuring Customer Success. Many companies use the most conservative annual churn rate formula possible and so everyone seems to have an annual churn rate of 10% or less. You’re tasked with making sure everyone looks at the raw, intellectually honest facts of the business – both good and bad.
How to Calculate Annual Churn Rate
To create an annual churn rate formula, you should be thinking about:
- Should we look at churn in terms of customers lost or dollars lost?
- When we talk about annual churn rate, are we including:
- The negative impact of price reductions
- The negative impact of renewals with discounts and lower dollar amounts
- The positive impact of renewals with up-sells
- The positive impact of price increases
- Should we measure annual churn rate as a percentage of total dollars / customers or dollars / customers that were eligible for renewal?
- How do we think about the annual churn rate we can control versus the churn that’s out of our control (e.g., customer goes out of business or gets acquired)?
- Can we remove the uncertainty of annual churn rate from newer customers versus older ones?
Annual Churn Rates by Industry
It’s difficult to compare annual churn rates across industries. Some industries are naturally sticky while others are very competitive. Companies that sell to SMBs naturally have a higher annual churn rate because of high rate of churn of the customers’ businesses themselves.
Customer-driven enterprises are getting proactive about identifying at-risk customers by leveraging the power unlocked by customer data, while growing the lifetime value of health customers.
With Gainsight, you can leverage your customer intelligence and automation to proactively manage retention, reduce the annual churn rate and identify upsell opportunities.