Churn rate is a measure of the number of individuals or items moving out of a collective group over a specific period.
The term is used in many contexts, but is most widely applied in business with respect to a contractual customer base, for example in businesses with a subscriber-based service model.
You invest a lot of money, time and energy acquiring customers. You recover this
investment over time, so the longer your customers stay, the stronger your business.
Lower churn = longer customer lifetimes = larger customer LTV
When a business has 100 customers, 3% monthly churn is just 3 customers. Easy to replace. But imagine a business with a million customers. Churn of 3% a month means it needs to replace 30,000 customers a month. Much harder.
The higher the CAC of a customer, the more important lower churn becomes.
For example, if you pay £700 in CAC to acquire a satellite TV customer, you can’t afford much churn and have a positive return on investment. If you pay only £30 to acquire a mobile customer, churn can be relatively high and yet the business still can have good unit economics.
Churn rate can be measured as number of customers/users or percent of revenue.