If recurring revenue is a island of singing nymphs on a greek island, then churn is Medusa who just turned you into a stone before you could reach the island … bummer.

Churn, monthly churn is what I mean, is the share of customers who stop their subscription because they didn’t achieve their desired result or because they didn’t need the service any longer. The latter happens if a customer gets acquired by another company or business is terminated. The first however, is a clear sign that the service was not to their satisfaction, and that puts a serious damper on the growth of the business.

Churn can be applied to subscribers and to MRR. Subscriber churn doesn’t take into account the difference in revenue if there are big price differences between 2 or more subscription plans, $29 / month vs $599 / month, but MRR does.

How to calculate subscriber churn:

Churn rate = [# of Beginning Month Subscribers] / [# of Churned Subscribers] x 100

How to calculate MRR churn:

[MRR Churn rate] = [Beg. Mo. MRR] / [Churned MRR] x 100

NB: To get the right MRR Churn you will need to “normalise” the annual, semi-annual subscriptions (spread them across the months of the subscription period), as described in the MRR chapter above.

If churn is higher than 4%, then stope everything else until its down to 2-3%, and here is why.

Example: Company A currently have $100.000 MRR and monthly growth of 6% (10% revenue growth minus 4% monthly churn).

At this rate, revenue will have doubled in 12 months to $201.000 MRR (100.000 x 1,06ˆ12).

Now lets assume we managed to reduce monthly churn from 4% to 2% instead, which would mean a growth rate of 8% instead of 6%. Doesn’t sound like much, but it’s half the amount of lost subscribers. and would result in $251.000 MRR ($100.000 x 1,08ˆ12) over 12 months, instead of $201.000.

There are more benefits to reducing churn, such as reduced customer acquisition cost (CAC) and increased customer lifetime value (CLV). We will cover that later.

So when will you start reducing your monthly churn?

So the growth is now $151.000 instead of $101.000 (50%) more or a total of $600.000 more revenue per year [(251.000-201.000)x12].