Calculating churn rate in Excel is a quick and easy way to identify customer turnover. You can simply build the formula into an Excel spreadsheet to evaluate your churn rate monthly, quarterly, or annually.
Let’s get started by examining the calculation for annual churn rate.
How Do You Calculate Annual Churn Rate
For this calculation you need the following inputs:
- Cell 1: Number of customers/clients you had at the beginning of the year.
- Cell 2: Number of THOSE clients that churned during that year.
Allocate Cell 1 and Cell 2 to specific cells in your Excel spreadsheet:
- In Cell 3 calculate “=Cell 2/Cell 1” to yield your churn.
For example, let’s say you start the year with 50 clients. At the end of the year, you’re still working with 40 of those clients. In this case, Cell 1 = 50 and Cell 2 = 10.
- Cell 2/Cell 1 = 10/50
- Cell 3 should read 0.2
What does this mean? Your company has churned 0.2 or 20% of your clients.
Your logo churn rate is 20%.
Is Churn Rate the Opposite of Retention Rate?
Churn rate and retention rate, combined, should account for all your customers – those who stayed and those who left. In other words, they add up to 100%. So churn rate is not exactly the opposite of retention rate. They are inverse to each other, which isn’t the same as being opposite.
To calculate revenue churn, you go through the same process, and replace the contents of Cell 1 & 2. Cell 1 becomes the total revenue earned during that period. Cell 2 is the dollars associated with the customers that churned.
So now you know how to calculate annual churn rate in Excel. You can use the same calculation for monthly churn rate or quarterly churn rate. So long as the timeframes for Cell 1 and Cell 2 are the same, you can use this calculation in Excel for any amount of time.
But the calculation is only the beginning. The value for you – and your company – is less about the calculation itself and more about how you use it to understand your customers.
The Limitations of Calculating Churn Rate in Excel
There are a few reasons why the calculation for churn rate, above, falls short to prevent customer churn. It has nothing to do with Excel as a tool. The issues is this: churn rate, alone, doesn’t provide sufficient information for you to understand whether you have a “churn problem” for three reasons:
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- A good churn rate in one industry can differ greatly from another industry.
Your benchmarks for churn are not the same. The way Netflix calculates churn and their levels of acceptable customer loss vs. a consulting firm that does a lot of hands-on customer work. Whether you sell low-cost products to the masses or white-glove services to a select few clients will impact the churn rate you set as your goal. - Monthly churn rate and annual churn rate are not equivalent.
We often see companies use monthly and annual churn interchangeably, but they are very different. A 5% monthly churn rate is equivalent to a 46% annual churn rate.
- A good churn rate in one industry can differ greatly from another industry.
- Knowing the number isn’t the same thing as truly understanding the impact of churn.
To fully understand churn, you need to go beyond the numbers. Each customer who leaves tells a story. Understanding that story and how it impacts your growth trajectory is vital for your success. Some churn can be healthy, for a variety of reasons.
You need more data than churn rate alone. You need context to understand how customer churn is impacting your business – from cost of customer acquisition to your ability to hit your revenue goals and ultimately be poised for an exit.
At Alignmint Growth Strategies, we’ve created a rich set of calculations to understand the business impact of customer churn. These walk through the impact of churn on your cost of customer acquisition, your ability to hit key revenue goals, and even be acquired or IPO.
Get access to those churn rate calculators, and the white paper that walks you through them at The Churn Virus.
Design Your Company’s Path to Next-Level Growth
Your company may have great product-market fit, a well-designed product, and sales/marketing teams that bring in new customers. But when those wins are met with a churn problem, it becomes impossible to grow and meet revenue targets.
Successful churn reduction strategies align your company to boost customer lifetime value…aka retention.
At Alignmint Growth Strategies, we deploy churn reduction strategies so that you hit your revenue targets and maintain momentum.
Your outcome?
Customers spend more, stay longer, and refer like crazy. Employees feel connected to your vision and confident they can be successful in their work. And leaders focus on progress and growth.
Discover the churn rate reduction strategies that work best for your company by making an appointment with Alignmint Growth Strategies. Connect with us today.