Customer Churn Impact Calculator
What churn costs over a year once it compounds, and what one point off the rate is worth in revenue, gross profit and lifetime value.
Customers 2,400
Monthly churn 4.2%
Annual churn 40.24%, which is 1 − (1 − monthly)^12
not 50.4%, which is the monthly rate multiplied by twelve
Average customer life 23.8 months
Over 12 months
customers left 1,434
customers lost 966
revenue if nobody left $1,094,400.00
revenue as it is $837,154.05
revenue churn takes $257,245.95, 23.5%
gross profit it takes $200,651.84
Taking 1% off the churn rate
new monthly churn 3.2%
new annual churn 32.31%
customer life 31.3 months, up 7.4
customers left at the end 1,624
extra revenue $54,301.20
extra gross profit $42,354.94
a retention project may cost up to $42,354.94 and still pay back inside 12 months
Lifetime value a customer
at the current rate $705.71
after the improvement $926.25
the difference $220.54
Where the customers go
month 2 2,203 left, $83,700.08 that month
month 4 2,021 left, $76,816.92 that month
month 6 1,855 left, $70,499.80 that month
month 8 1,703 left, $64,702.18 that month
month 10 1,563 left, $59,381.33 that month
month 12 1,434 left, $54,498.05 that month
Monthly churn compounds. 4.2% a month is 40.24% a year, not 50.4%,
because each month's losses come out of a smaller base. Multiplying the
monthly rate by twelve overstates the annual figure, and dividing an
annual rate by twelve understates the monthly one.
At this rate the average customer stays 23.8 months, which is 1 divided
by the monthly rate. That is the number that sets lifetime value, and it
is why a churn reduction is worth more than the same effort spent on
acquisition: acquisition buys one customer, retention lengthens every
customer.
Taking 1% off the rate is worth $42,354.94 of gross profit over 12
months, and it raises lifetime value from $705.71 to $926.25. That is
the budget a retention project has to beat, and it is usually larger
than people expect.
Revenue churn and customer churn are different numbers. Losing ten small
customers and losing one large one look identical in a customer-churn
figure and nothing alike in the accounts, so calculate both and report
the revenue one to anybody making a financial decision.
Net revenue retention can exceed 100 percent while customers leave.
Expansion from the customers who stay can more than cover the ones who
go, which is a healthy business with a churn problem, and reporting only
the net figure hides it.
The reason matters more than the rate. Churn from a bad onboarding
experience, a missing feature, a price rise and a customer going out of
business need four different responses, and the aggregate rate gives you
no clue which you have.
Averages hide cohorts. Churn is almost always front-loaded: the first
month or two is far worse than the twelfth, so a flat monthly rate
applied to everybody understates the early losses and overstates the
later ones. A cohort table is the fix.
A discount to stop somebody leaving is a price cut you gave to the least
satisfied customer. It works, it is often worth it, and it sets a
precedent that spreads by word of mouth, so it is worth counting as a
permanent reduction in that customer's revenue rather than a one-off
save.
Output is valid and updates as you type.
Fix the highlighted fields to update the output.
Four point two percent monthly churn is not fifty percent a year. It is forty.
Churn compounds: each month’s losses come out of a smaller base, so the annual rate is 1 − (1 − 0.042)^12, which is 40.24 percent rather than the 50.4 you get by multiplying. The same mistake in the other direction makes an annual rate look like a smaller monthly one than it is.
The figure worth having is what one point off the rate is worth. Here it is $42,355 of gross profit over a year and $220 on every customer’s lifetime value, which is the budget a retention project has to beat.
How to use
- Put in the customers, the monthly churn rate and the revenue a customer brings in a month.
- Add the gross margin so the answer is in profit rather than revenue.
- Set how many points you think a retention project could take off the rate.
Example
2,400 customers at 4.2 percent monthly churn, $38 a month, 78 percent margin:
Annual churn 40.24%, which is 1 − (1 − monthly)^12
not 50.4%, which is the monthly rate multiplied by twelve
Average customer life 23.8 months
Over 12 months
customers left 1,434
customers lost 966
revenue if nobody left $1,094,400.00
revenue as it is $837,154.05
revenue churn takes $257,245.95, 23.5%
gross profit it takes $200,651.84
Taking 1% off the churn rate
new monthly churn 3.2%
customer life 31.3 months, up 7.4
extra revenue $54,301.20
extra gross profit $42,354.94
a retention project may cost up to $42,354.94 and still pay back inside 12 months
Lifetime value a customer
at the current rate $705.71
after the improvement $926.25
the difference $220.54One percentage point moves the average customer life by more than seven months. That is the leverage retention has and acquisition does not.
Pitfalls
Monthly and annual churn are not related by twelve. Multiplying overstates the annual figure and
dividing understates the monthly one. Use 1 − (1 − monthly)^12 in one direction and
1 − (1 − annual)^(1/12) in the other.
Average customer life is one over the churn rate. At 4.2 percent a month that is 23.8 months, and the relationship is not linear: halving churn doubles the life, which is why the last point of improvement is worth more than the first.
Revenue churn and customer churn are different numbers. Losing ten small customers and one large one look identical in a customer-churn figure and nothing alike in the accounts. Calculate both, and give the revenue one to anybody making a financial decision.
Net revenue retention can exceed 100 percent while customers leave. Expansion from the ones who stay can more than cover the ones who go, which is a healthy business with a churn problem, and reporting only the net figure hides it.
Churn is front-loaded. The first month or two is far worse than the twelfth, so a flat monthly rate understates the early losses and overstates the later ones. A cohort table is the fix, and it usually shows that the problem is onboarding rather than the product.
The reason matters more than the rate. A bad onboarding experience, a missing feature, a price rise and a customer going out of business need four different responses, and the aggregate rate tells you nothing about which you have.
A retention discount is a permanent price cut. It goes to your least satisfied customer, it usually works, and it travels by word of mouth. Count it as a reduction in that customer’s revenue rather than a one-off save.
Compatibility
Arithmetic in the browser: nothing is uploaded and nothing is stored.
The projection steps forward a month at a time, applying the churn rate to the remaining base rather than the original one, which is what makes the annual figure compound properly. Revenue is summed month by month against the counterfactual of holding the base flat, so the loss is the area between the two rather than a single end-of-year difference.
Lifetime value uses gross profit per customer divided by the monthly churn rate, which is the standard simplification: it assumes a constant rate and no expansion. Both assumptions are optimistic in different directions, and it is the same formula the lifetime value calculator on this site uses, so the two agree.
The improvement is applied as a reduction in percentage points, not as a relative change, because that is how retention targets are set in practice.
Frequently asked questions
How do I convert annual churn to monthly?
1 − (1 − annual)^(1/12). Forty percent a year is 4.16 percent a month, not 3.33. The difference
compounds into a large error over a year of planning.