Churn Matters, Part 1: Calculating and tracking churn in a service business

The number of members who leave your business in a given time period is known as churn.

Also called attrition, churn is an unavoidable component of membership- and subscription-based businesses—new clients will sign up and existingclients will leave. This ebb and flow of clients is perfectly normal since not everyone is a perfect fit for your business. But even though it’s unavoidable, minimizing churn needs to be a continuing focus.

In this post we’ll cover how to find your churn rate and how to track the reasons your members are leaving, Understanding why members churn can help inform your efforts for minimizing future churn.

First, let’s understand how much churn your business is experiencing.

Exercise: Find your churn rate

There are two ways you can look at churn—quarterly or monthly. How do you know which number is better for your business?

If your business experiences seasonal patterns you might find that you’ll have several months with very little or no churn and then have a month where churn is particularly high. For this reason, some personal services businesses may want to look at the quarterly churn rate in addition to the monthly churn rate.

Calculate: Quarterly churn rate

Divide the number of members you lost last quarter by the number of members at the start of last quarter.

Lost members last quarter/members at the start = churn rate last quarter

For example:

If you started last quarter with 128 members and had 11 people cancel during the quarter, your churn rate would be 11/128 = 8.59%

Tracking quarterly churn allows you to see trends by quarter. If you track quarterly churn year after year, you’ll be able to compare quarters of previous years. For example, you’ll be able to see how your churn rate from Q1 of 2015 compares with the churn rate in Q1 of 2014.

Calculate: Monthly churn rate

Divide the number of members you lost last month by the number of members at the start of last month.

Similar to the previous example — let’s say you started last month with 139 members and had 3 cancellations during the month. Your churn rate would be 3/139 = 2.16%

As you can see from the above two examples, churn can vary significantly depending on the time period you’re looking at and whether your business experiences seasonality. In fact, many service businesses find they experience increased churn during the summer months or other off season, depending on the type of business.

Exercise: Track why are members churning

There are a lot of reasons a member might churn from your business, and it’s important to track them—the more information you have about why your members leave, the easier it is for you to make critical changes in your business.

Some reasons members churn:

• Financial hardship
• Not getting results
• Poor service
• Moving out of the area
• Increased family or work obligations
• Injury
• Not a fit
• Other or no response

Your task:

1. Make a list of reasons that are applicable to your business.

2. Keep a log (can be a simple Excel spreadsheet) that contains the member name, the date the member started at your business, the date of the membership cancellation, and the reason for leaving.

After a few months of tracking churn you’ll be able to look at your data for trends. For example, if you find a large percentage of cancellations are because of “poor service” or “not getting results” you have concrete information on what needs to be done to improve your business.

So what’s the right amount of churn for your business? Is it 1%, 4%, 10%?

We’ll answer that in part 2. Come back next week!