For subscription-based services, the churn rate illustrates the percentage of customers who leave the service in any given month.
Typically, churn rates look favorable. A company will report a monthly churn rate of 6%, suggesting that it keeps 94% of subscribers each month.
But churn rate has a damaging cumulative impact that can be illustrated on an annual basis.
For instance, a 6% monthly churn rate yields an annual retention rate of just 48% (1 - 0.06) %^ 12.
In the Multichannel Forensics framework, monthly churn rates translate as follows.
- Retention Mode (60% or Greater Annual Retention) = Less Than 4% Monthly Churn.
- Hybrid Mode (40% to 60% Annual Retention) = 4% to 7% Monthly Churn.
- Acquisition Model (0% to 40% Annual Retention) = Greater Than 7% Monthly Churn.