What is churn rate?

Churn rate is the percentage of customers who leave during a given period. It is usually measured monthly or yearly for subscriptions and services. It matters because a business with high churn has to keep finding new customers just to stay the same size.

How it works

Churn rate = customers lost in the period ÷ customers at the start of the period. If you start with 1,000 and lose 50, churn is 5%. Each period, the customer base is multiplied by (1 − churn) and then new customers are added. With constant churn, a customer's expected lifetime is 1 ÷ churn periods, so 5% monthly churn means an average of 20 months.

The feedback is a balance: new customers push the base up, churn pulls it down, and the base settles where additions equal losses, at new customers per period ÷ churn rate. Even small improvements in churn make a large difference to the long-run size, which is why retention is often cheaper to improve than acquisition.

Example

Say a service has 1,000 customers, gains 100 new ones each month and loses 5% monthly. After month one: 1,000 − 50 + 100 = 1,050. After month two: 1,050 − 52.5 + 100 = 1,097.5. The base keeps growing toward 100 ÷ 0.05 = 2,000. If churn fell to 4%, the ceiling would be 100 ÷ 0.04 = 2,500, a 25% larger business from one point of churn. These are illustrative numbers.

How to model it in Machinations

Use a Pool for active customers, a Source for new sign-ups and a Drain for departures. Make the Drain's rate a Register equal to the Pool's value times the churn rate, with a state connection from the Pool. Set churn and sign-ups as Levers. Play and chart the Pool, and change the churn Lever to see where the base levels off.