How to Calculate Customer Churn Rate for your eCommerce Store?

May 3, 2021 Written By Hemant Parmar

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Do you also think that selling more is the answer to grow your business? Well, it could be but that’s the only tip of the iceberg. It’s not only more time, money, and effort to convince and turn someone to sign up and make a purchase but it’s also your current customers who are more likely to keep your business going and blooming in the future.

You might find this rhythm familiar to you, buy new gold, but keep the old one. And the same is applied to businesses, make new clients, but keep the old clients. What you can do to keep the old clients close to your business is by taking care of them and showing they are important to you and your business.

Customer churn is one of the most powerful metrics for an increasingly developing business to take into consideration. Your churn rate is the percentage of your customers that leave your service over a given period.

Meanwhile, customer churn is a harsh reality that all businesses have to deal with, even the giant companies suffer from customer churn, and understanding causes formerly loyal customers to abandon ship is important to lasting, sustainable growth.

In this guide, we will look at what customer churn rate is, what constitutes a good churn rate and how you can stop your customers from turning back on you forever.

What is Customer Churn Rate?

Customer churn is when current customers stop doing business with you. This can mean different things depending on the nature of your business. Customer churn is vital to understand the health and stickiness of a business, but actually calculating it can be unnecessarily complex.

Customer churn is a crucial to metric until since it is much cheaper to retain existing customers than it’s to win new ones, which means working with potential leads all the way through the entire process of sales funnel.

Before you can figure out what your churn rate is, you need to decide how you’re going to quantity actions such as those above and agree on what defines customer attrition for your business.

Calculating Customer churn rate

The churn rate formula can be calculated as the number of churns divided by the total number of customers. You can measure your client churn rate in one or more of the following ways:

  • Total number of customers lost during a specific period
  • Percentage of customers lost during a period
  • Recurring business value lost
  • Percentage of recurring value lost

Let’s take a book and do the math to calculate churn rate by the following example:

Let’s assume that your company has 100 customers at the beginning of the month

3 customers lost/100 starting customers  = 3 % churn rate

You could also choose to calculate your churn rate based on how many customers you have at the end of the month, rather than the following:

3 customers lost/104 ending customers = 2.9% churn rate

You can also calculate customer churn based on revenue.

What is a Good Customer Churn Rate?

In today’s ideal world, the perfect client churn rate would be zero. Unfortunately, this is not going to happen. No matter how excellent your service is or great your products are, you will lose customers. This doesn’t mean you will not have a good churn rate ever because you can achieve and maintain a good churn rate and that’s acceptable. But determining what churn rate would be good depends on your industry.

Some sectors have significantly higher rates while some have low. However, it’s difficult pinning down average customer churn rates by industry because, for some reason, most companies aren’t too keen to calculate how many customers they lose regularly.

What Cause Customer Churn Rate?

Many reasons can lead customers to drop a business, but there are a few that are believed to be the main cause of customer churn.

The first and foremost is the substandard customer service. Yes, this could be a major reason because most of the customers left a business because of a poor experience. Living in the modern era, where a customer is the heart of business especially when customers are demanding excellent customer service and experiences.

If you couldn’t provide them with it, they will flock to your competitors and even share their harmful experiences on social media posts. Meanwhile, poor customer service results in several customers churning that just one customer who receives a bad service experience.

Other reasons could be a lack of value, a lack of brand loyalty, a lack of open-minded customer success, a lengthy and complicated onboarding process, natural causes that happen for all businesses from time to time, or low-quality communications.

How to Calculate Customer Churn Rate?

As discussed, the customer churn rate can be calculated in many ways by various companies, as it may illustrate the sum total number of customers lost, the value of recurring business lost, the percent of recurring value lost. Others calculate churn rates for a specific period.

One of the most commonly used methods for measuring churn rate is to divide the numbers of customers lost throughout a time period by the total number of customers at the beginning of the same time. To have an estimate, you can segment your customers based on the frequency of their purchase.

Customer churn rate = Number of customers lost/ Total number of customers (Period) * 100

Applying this customer churn rate for one iteration is pretty easy, however, it is much more complicated if you have to calculate client churn over numerous periods.

Let’s understand by example…

This is a case in point calculation of the customer churn formula:

First, assume every year you are making just 20 customers who purchase worth $200 worth of goods and services. Over a 3-year time at 0% churn rate, you will be earning ($200*20) + ($200*30) + ($200 X 30) = $16. 000.

However, things get complicated when the churn rate comes into the picture. Now, let’s assume an average business churn rate of 30% and all of the sudden, you just have ($200*20) + ($200*17) + ($200 X 21.1) = $11. 620.

Well, companies are spending a lot on finding and making new customers rather than making sure that how many customers continue to make repeat purchases.

Bottom Line!!

Summing it up all, customer churn is now the biggest nightmare that most online businesses face. But don’t worry, the customer churn metrics are the best way to finding how many customers are abandoning your business and how much lost revenue you are suffering as a result.

Want to know how can you retain your current customers? M-connect Media can help you by reducing the customer churn rate. We believe that customers are the heart of any business. Dial us now to know about expert’s customer retention practices.

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