Are you losing subscribers? Find out how the churn rate can improve your business and why it's important to track it from our article.
Losing subscribers is always painful. But not knowing how many of them you lost is even worse. To keep abreast of your business cycle, you should track the churn rate. Learn what kind of metrics it is and how to calculate it from our article!
Let's imagine that you worked on your app for months and put all of your efforts to make it perfect. The final result was awesome. You loved it, and so did your investors and customers who kept subscribing to it. For a second you thought that life can't get even better until you started losing subscribers. Does it sound familiar? Well, we can feel your pain. But the good news is that it's not the end of the world!
In our previous blog posts, we have already studied how to grow fast in 2022 and calculate ARPU with ARPPU. But today we'll focus on the churn rate. We'll explain why people unsubscribe and how you should adjust your strategy to keep them on board. So, if you're wondering how the churn metric can help you in that, keep reading!
Churn rate, or, as we call it in Apphud, Subscriptions Churn, is a percentage of people who unsubscribed from your app during a particular period of time. For any subscription-based company that wants to succeed, tracking this metric is essential. The churn rate helps you to understand whether your business is growing or declining. Basically, more people are no longer active on your app, higher the churn rate, and less money for you. Easy as that.
Subscriptions churn reveals problems in your app. If people left, it means they were dissatisfied with your product. But why do they leave, you may ask. Well, reasons can vary from poor customer service and technical issues to switching to your competitor's product. In any case, it's a clear sign that things aren't working correctly in your business. And you need to fix it ASAP. Remember that every person you lose means lower revenue for your company.
There are various ways to calculate churn rate but we recommend this formula:
Subscriptions Churn = (Number of subscriptions expired during the period) / (Number of paid subscriptions at the start of the period) * 100%
As every company and market is different, remember that the churn rate varies greatly by industry. Indeed, 5-7% annually is perceived as a good indicator but there is no universal average. Everything depends on how you calculate your churn rate and whether you measure customers or revenue.
Another question that many people may have is how often should I measure the churn rate. We believe that there is no need to monitor it on a day-to-day or week-to-week basis. But checking it once per month together with other metrics would be useful for your business.
One thing you should keep in mind is that people always come and leave. So, instead of blaming yourself, you should adjust your strategy to prevent churn.
Also, don't forget to review your marketing strategy and ask yourself whether you are targeting the right audience. If not, then make adjustments to ensure that the people you target will actually benefit from your service.
In Apphud, the number of paid subscriptions at the start of the period means that any new subscriptions that could appear inside the period are not included.
Churn can also be negative. This may happen if your app allows customers to have more than one subscription simultaneously and the user adds a purchase to existing ones. It's called "expansion." Negative churn signals that your app has a solid value for your customers.
In Apphud, we also calculate the churned revenue, which shows how much profit you lost during the selected period. This data gives you more information for making the right decision.
Churned revenue is especially helpful to ensure that you're not losing the most valuable customers. Because subscriptions churn can be relatively low while churned revenue is high. Keep in mind that like subscriptions churn, revenue churn can also be negative if users upgrade subscriptions or subscribe more within your app. And that's a good sign.
To calculate churned revenue, we follow this formula: Churned revenue = (MRR Lost to Downgrades + MRR expirations in the period) / (MRR at the start of the period) * 100%
MRR at the start of the period means that any new MRR inside the period is not included.
To sum up, if you want to understand why you lose subscribers and what are the reasons for this loss, the churn rate should be under your radar. In this article, we told you how to avoid hidden pitfalls and obtain happy and loyal customers. But did you know that there are other important metrics that can help you to boost your app's performance?
With Apphud, you can track more than 20 metrics, including churn rate, to reach and even exceed your app's potential! All important information will be stored in one place with easy access. You don't need to code anything or worry that you won't get notifications in time. We're always here for you, any time you need us. Sign up for FREE and try it out yourself!