Churn rate or cancellation rate is the term that refers to the percentage of subscribers who decide to unsubscribe from an email list or any other kind of database within a specific period of time.
It is a particularly important metric in subscription business models and indicates the value of customer lifetime.
How is Churn Rate measured?
A specific period of time is chosen (it can be done by months, quarters, etc.) and the following formula is applied to extract a percentage:
Number of cancellations in a period / Total number of subscribers at the beginning of the period
If there were 100 subscribers at the beginning of the period, and 5 have been lost, the Churn Rate would be 5%.
Although it is impossible or almost impossible to have a cancellation rate of 0%, it is best to try to optimize it to be as low as possible.
In SaaS businesses, a churn rate of between 5% and 7% is generally considered normal, although it varies depending on the industry.
How to avoid or reduce the cancellation rate?
To prevent the churn rate from skyrocketing, it is advisable to consider the following elements:
Offer a good service and/or product
Do not create false expectations in order to get people to subscribe to something that you will not be able to provide properly
Have a good customer support and service
Maintain "active listening" to improve the product and the relationship with customers
Implement cross-selling or upselling actions
Accept that there are customers who are better off losing if they do not adapt to your business model and are far from your ideal customer