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What is customer churn and how is it measured?
Churn is the rate at which customers stop buying or cancel over a given period. It is usually calculated as customers lost during the period divided by customers at the start. For subscriptions the definition is clear, while for retail or one-off purchases you must define churn as, for example, no purchase in 180 days.
The definition drives everything else, so agree it before building anything. Choose the time window and the event that counts as leaving.
Watch out for:
- Mixing customers who joined at different times, which distorts averages.
- Treating a seasonal buyer who simply returns each year as churned.
- Revenue churn versus customer churn, which can tell different stories if big customers behave differently from small ones.
Cohort tables, grouping customers by sign-up month, are a simple and honest way to view it.
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