HOW DO YOU CONVERT ANNUAL CHURN TO MONTHLY?

Being able to convert your monthly churn rate to annual and annual churn rate to monthly is important for understanding your customers and why they’re leaving your company. Churn is a crucial metric to SaaS companies and any subscription-based business for that matter. For SaaS companies to grow and scale their business, they must retain a high percentage of their customer base. For most SaaS companies churn reduction is the biggest opportunity for growth.

SaaS churn rate is the rate at which customers stop doing business with a company over a given period of time. Churn may also apply to the number of subscribers who cancel or don’t renew a subscription. The higher your churn rate, the more customers stop buying from your business. The lower your churn rate, the more customers you retain. Typically, the lower your churn rate, the better.

In this post we’ll walk through key churn calculations AND give you an interactive calculator to convert between monthly and annual churn rates. SCROLL DOWN for the calculator

How Do You Calculate Churn Rate?

There are two types of churn that are typically calculated when we talk about churn rate. They are customer and revenue churn rates. They both have tremendous value but tell you slightly different stories. Let’s look at how to calculate customer and revenue churn rates.

How Do You Calculate Customer Churn Rate?

Customer churn (or logo churn) treats all customers equally in terms of their churn impact on your business. The number of customers who cancel their contracts regardless of the amount they spend with you is referred to as the customer churn rate. Companies generally provide more services for customers that spend more vs. customers that spend less. Low-dollar churn can be easily justified and sometimes ignored as your focus remains on your highest-paying customers. However, low dollar churn adds up, contributes to negative word of mouth and can be the underlying source of the leaky bucket. Logo churn rate is a great way to ensure your blindspots don’t catch you off guard.

Here is the formula for customer churn rate or logo churn rate:

How Do You Calculate Revenue Churn Rate?

Revenue churn demonstrates a company’s ability to retain revenue, and as opposed to logo churn, revenue retention doesn’t treat all customers equally. Revenue churn rate helps you quantify the financial impact of churn over a specific time period. It can demonstrate your ability to retain key high-paying accounts and can quantify the impact of high levels of low-dollar churn. 

Here is the formula for revenue churn rate, also called gross revenue retention:

When evaluating revenue churn you look over a given period of time. SaaS companies tend to look at monthly churn or annualized churn rates.

Calculating Annual Churn vs. Monthly Rate

Now let’s dig into annual churn, monthly churn and how to convert a monthly churn rate to annual, then back again. Whether you’re looking at annualized churn or monthly churn, the formulas are the same. The difference lies in the time period and this is where you need to ensure you are consistent. For example, if you will calculate monthly customer churn rate then the following formulas would be used:

If would like to calculate annual customer and revenue churn the following formulas would be used:

The churn calculations above do not take into account growth or new customer acquisition. Sales that occur during the time period used (month or year) should not be included in the customer logo count or revenue totals.

How Do You Convert Annual Churn to Monthly 

Converting annual churn accurately takes a little more sophistication as it is not as easy as dividing an annual churn rate by 12 or multiplying a monthly churn rate by 12. In some instances, you will get close but unfortunately, it isn’t as clean as that. 

To convert annual churn to a monthly churn rate:

MONTHLY CHURN RATE = 1 – (1 – ANNUAL CHURN RATE)^(1/12)

To convert monthly churn to annual churn:

ANNUAL CHURN RATE = 1 – (1 – MONTHLY CHURN RATE)^12

The formulas above can be copied into Excel, replacing the annual churn rate or monthly rate with the appropriate percentage and it will do the conversion for you. 

To make the math easy, here’s a calculator that instantly converts your monthly churn rate to annual churn and vice versa. Here’s how you use it:

Churn Conversion Calculator

Monthly and Annual Churn help you understand different aspects of customer behavior. Monthly churn allows you to quickly identify and address issues in your business. Annual churn helps companies assess the overall health of their customer base and predict future revenue more accurately. Use this calculator to easily convert between Monthly Churn and Annual Churn numbers.

Instructions:

  1. Enter the Monthly Churn Rate.
  2. Enter the Annual Churn Rate.
  3. Click on Calculate to see the converted Churn Rate.
CONVERT

Annual Churn Rate:



CONVERT

Monthly Churn Rate:




For more information on churn conversion, click here.

WHAT IS A GOOD CHURN RATE?

If you want to know whether your company has a good customer churn rate you’re not alone. However, there’s no simple answer to that question because the definition of “good customer churn rate” differs by industry and other factors like the profile of your customers. 

For example, Product-Led Growth (PLG) models are designed for low prices and a higher number of customers. The nature of the business model means they can tolerate higher churn rates, which could be an annual churn rate greater than 10% vs. the  average churn rate for SaaS (software-as-a-Service), which aims for less than 10% annually.

In contrast, offerings positioned for large, Enterprise-level sales generally provide fewer, higher-service deliverables. Companies with customers that spend more for white glove services should aim for a churn rate closer to 0%. 

Under any circumstances. it’s important to understand your monthly churn rate, your annual churn rate, and how to translate monthly churn to annual churn and back again.

Design Your Company’s Path To Next-Level Growth With Alignmint Growth Strategies

Your company may have a 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.

2 thoughts on “HOW DO YOU CONVERT ANNUAL CHURN TO MONTHLY?”

  1. Could you expand on what revenue at start of period is? For example if I am looking at the annual revenue churn. Do I take the previous year’s revenue as revenue at start of year. Is revenue lost the revenue I would have received had they stayed, or the revenue from the previous year? An example would be very useful.

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