What is customer churn?
How is churn calculated?
Take the customers you had at the start of a period. Count how many you lost by the end. Divide the second number by the first.
The hard part is "left". A subscription box has a cancel button, so the moment is clear. A shop that sells clothes has no such moment. Customers just stop ordering. Nobody tells you.
When does an ecommerce customer count as churned?
You pick a rule. One practical form is "no order in a set number of months". Vendor explainers such as IBM's are written for subscription businesses and leave this choice to you1. The number depends on how often your customers buy. A brand selling coffee beans and a brand selling sofas need very different gaps.
Write the rule down and keep it fixed. If you move it every quarter, the trend means nothing.
Why does it matter for ecommerce brands?
Churn shows how many of your customers you must replace just to stand still. That is part of what a customer is worth over time: see LTV (customer lifetime value).
Churn is also the other side of retention, the share who buy again. For a shop, repeat purchase rate is often easier to track. Cohort analysis helps, because it follows groups of customers by first-purchase month.
Customers who keep buying only help if each order leaves money. That is contribution margin territory.
For ZFD: In our view, a churn number is only useful with its definition printed next to it.
Worked example
Easily confused with
Churn vs Retention
The mirror image: customers who stay or buy again.
Churn vs Repeat purchase rate
Share of customers with two or more orders. A different question.
Churn vs Unsubscribes
Someone can leave your email list and still buy. That is not churn.
FAQ
Is churn the same as cancelling a subscription?
Only for subscription businesses. Elsewhere churn is a rule you set, such as no order for a set time.
What is a good churn rate?
It depends on your product and how often people buy. Compare your own churn over time, using one fixed definition.
Sources
- What is customer churn?Vendor
Let’s find what’s actually working.
Next step. Check what repeat orders are worth after costs. Use the Is your ROAS real? calculator.