Churn Analysis 101: Quick Introduction, Key Concepts

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Table of Contents

Definition

The Churn Rate of users for a product or service equals the fraction of users who disengage (see concepts below) relative to the total number of users, in a given time frame.

Customer Churn Rate = (Customers beginning of month - Customers end of month) / Customers beginning of month

Contractual vs Non-Contractual Churn

  • Contractual: Customer cancelled a recurring payment option or subscription.

  • Non-contractual: Customers don't explicitly opt out of a service; they simply stop don't actively use it anymore. E.g. you used to shop at Amazon regularly, but you have not purchased anything in more than a year.

Voluntary vs Involuntary Churn

  • Voluntary Customer actively cancelled/closed their account.

  • Involuntary: Account deactivation due to inactivity, account expiration, payment failures

User Cohorts

It's very important to split churn analysis along several dimensions, for example:

  • Months since purchase

  • User Demographics (Age, Sex, Location)

  • Product/Service Usage patterns

  • Cutoff Dates (Churn rate last year VS churn rate this year)

References

Dialogue & Discussion