What churn rate measures
Customer churn is the share of an opening customer base that stops being active during a defined period. The definition of “lost” must be explicit: cancelled subscription, lapsed customer, closed account or another business-specific event.
For subscription businesses, monthly churn is common. For ecommerce, a repeat-purchase window may be more appropriate than treating every customer who has not purchased this month as churned.
Use the opening cohort as the denominator. New customers acquired during the period should not inflate the starting base.
Worked example
A subscription business starts the month with 2,000 customers and 120 cancel. Monthly customer churn is 6%. Before adding new acquisition, the retained base is 1,880 customers.
How to use the result
Use churn with acquisition cost and LTV. A business can scale new-customer acquisition and still struggle if customers leave quickly enough to offset growth. Cohort analysis is especially important when cancellation risk changes with tenure.
Common mistakes
- Adding newly acquired customers to the opening denominator.
- Changing the definition of an active customer between periods.
- Comparing monthly and annual churn percentages directly without conversion.
When to recalculate
Recalculate for each consistent reporting period and segment customer cohorts when retention behavior differs materially.
Frequently asked questions
Is churn just 100% minus retention?
For the same cohort, period and definition, yes: churn plus retention equals 100%.
Should ecommerce stores use churn?
They can, but a repeat-purchase or retention definition often needs a longer observation window than subscription cancellation.