In plain words
Churn rate is the share of subscribers you lose. Measured per order, it is the share who received one order and did not take the next. Measured per month, it is the share active at the start of the month who had cancelled by the end.
It is retention seen from the other side, and small changes in it matter more than they look. Churn applies again at every renewal, to whoever is left. Five points more churn does not cost five percent of a subscriber's value. It costs far more, because every later renewal is lost too.
Formula
- Churn rate = 1 − retention rate
- Expected renewals over a lifetime at constant churn = (1 − churn) ÷ churn
Worked example
At 15% churn per order, a coffee subscriber is expected to take 5.7 renewals over a lifetime. At 20% churn, 4.0.
Over the first twelve orders the engine puts the subscriber's expected profit at $58.90 at 15% churn and $46.50 at 20%.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
Monthly churn is not per-order churn
A subscription that ships every two months has half as many chances to churn in a year as a monthly one. Comparing a monthly churn figure with a per-order one, or across different delivery intervals, compares different things. Say which you mean.
Using it
Measure churn by order number: first to second, second to third, and so on. Early churn is the highest and the most worth fixing. Split subscribers who cancelled from those whose payment failed, because a failed payment can often be recovered and a decision to leave usually cannot.