This article provides information on the two sets of churn rate formulas available in ChartMogul, helps you select the best one for your business, and explains how each formula impacts the calculation of your churn metrics.
Sections in this article:
- Which churn rate formula is right for you?
- Configuring Churn rate formula
- Customer Churn Rate
- Net MRR Churn Rate
- Gross MRR Churn Rate
- Quantity Churn Rate
Related Articles & Resources:
Which churn rate formula is right for you?
ChartMogul offers two sets of churn rate formulas based on your business model: B2B or B2C.
Our Standard Formula generally works best for B2B subscription businesses. The formula calculates how a given metric (e.g. number of customers, subscriptions, or MRR) has increased (or decreased) between the start and end of a period.
For B2C subscription businesses, we recommend the Shopify Formula. This formula calculates how a given metric (e.g., number of customers, subscriptions, MRR) has increased (or decreased) between the start and end of a period by calculating and summing together the increase (or decrease) for each day in the period.
The Shopify Formula is better suited for businesses that add a high volume of new customers each month — usually with little expansion or contraction MRR — and offer mostly monthly subscriptions that customers can cancel at any time.
The churn rate formula you select affects how ChartMogul calculates and presents each churn metric which we discuss in detail in the following sections.
Configuring the Churn Rate Formula
Access your Churn rate formula setting by clicking Data Platform > Data Settings > Subscription Analytics. From there, select the formula that best suits your needs.
Please see our Data Settings article for more information on how to configure this setting.
Customer Churn Rate
Customer Churn Rate is the rate at which customers stop doing business with you. A customer contributes to churn once they’ve canceled all of their subscriptions. If the customer has multiple subscriptions and only cancels one of them, ChartMogul classifies their cancellation as contraction (and not churn).
Standard Formula (B2B)
Formula
Example
At the start of the month, you have 100 customers. During the month, 12 customers churn. Of those who churn, one reactivates, and one had joined during the period. Your customer churn rate is 10%: (12 − 2) / 100.
Shopify Formula (B2C)
Formula
Example
At the start of Monday, you have 100 active customers. That day, you lose five customers. The next day, you gain ten but lose five customers, leaving you with 100 customers at the end of Tuesday. ChartMogul excludes the new customers gained on Tuesday from the calculation and produces a customer count of 90.
The customer churn rate for this period (Monday – Tuesday) is the sum of each day’s churn: 10.26%:
- Monday’s customer churn rate: (100 − 95) / 100 = 5%
- Tuesday’s customer churn rate: (95 − 90) / 95 = 5.26%
Net MRR Churn Rate
Net MRR Churn Rate is the rate you lose MRR through downgrades and cancellations, offset by expansion and reactivation MRR.
Standard Formula (B2B)
Formula
Example
At the start of the month, you have $100 in MRR. During the month, you lose $10 to churn and $10 to contraction, while one customer increases their MRR by $10. Your net MRR churn rate is 10%: (($10 + $10) − ($10 + $0)) / $100.
Shopify Formula (B2C)
Formula
Example
You have $100 in MRR at the start of the day and $120 in MRR at the end of the day. $10 of the growth in MRR came from new business. Your net MRR churn rate is −10%: 1 − ((120 − 10) / 100))
Gross MRR Churn Rate
Gross MRR Churn Rate shows the revenue churn rate without being offset by the impact of upgrades.
Standard Formula (B2B)
Formula
Example
At the start of the month, you have $100 in MRR. During the month, you lose $10 to churn and $10 to contraction, while one customer increases their MRR by $10. Your gross MRR churn rate is 20%: ($10 + $10) / $100.
Shopify formula (B2C)
Formula
Example
At the start of the day, you have $100 in MRR. At the end of the day, you have $95 in MRR. Your gross MRR churn rate is 5%: 1 − ((100 − 5) / 100)
Quantity Churn Rate
Quantity Churn Rate is the rate at which customers cancel subscriptions or reduce the number of subscription licenses or seats (i.e. their subscription-quantity value).
If your company sells individual licenses or seats, it’s important to understand the difference between Subscriptions and Subscription Quantity.
Subscriptions are the individual instances of subscription plans your customers have subscribed to, whereas Subscription Quantity is the quantity of these subscriptions.
For example, Emperor Gaming Inc subscribes to four Gold plans and five Silver plans. They have two subscriptions (1 x Gold + 1 x Silver) with a subscription quantity of nine (4 x Gold + 5 x Silver).
If your company doesn’t sell licenses or seats (or your billing system doesn’t support subscription quantities), these two metrics will generally be the same.
Standard Formula (B2B)
Formula
Example
At the start of the month, your customers have ten active subscriptions. During the month, you lose two subscriptions: one from an existing customer and one from a new customer who purchased the subscription that month. Your quantity churn rate is 10%: 1 / 10.
Shopify Formula (B2C)
Formula
Example
At the start of Monday, you have 100 active subscriptions. That day, you lose five subscriptions. The next day, you gain another ten but lose five, leaving you with 100 subscriptions at the end of Tuesday.
The quantity churn rate for this period is the sum of each day’s quantity churn rate:
- Monday’s quantity churn rate: (100 − 95) / 100 = 5%
- Tuesday’s quantity churn rate: (95 − 100) / 95 = −5.26%
The quantity churn rate for Monday – Tuesday is −0.26%. A negative quantity churn rate indicates you’re gaining new subscriptions faster than you’re losing them.