Calculating Churn When Multiple Items Are Involved
Subscribe ProJuly 11, 2023
Calculating customer churn essential for any subscription business. For direct-to-consumer (DTC) e-commerce brands, especially in the physical Consumer Packaged Goods (CPG) sector where subscriptions often involve multiple items, it can be more complex.
Unlike conventional e-commerce, where purchases might be sporadic, subscription models promise recurring revenue. However, this advantage is easily negated if a significant proportion of subscribers cancel their subscriptions. Understanding churn allows you to identify issues and opportunities in your business model, thereby influencing customer retention strategies.
To calculate customer churn, you need to track the number of customers who have canceled their subscriptions during a specific period, say a month or a quarter. However, it’s not as simple as it sounds when multiple items are involved. You might find that a customer drops one or two items from their subscription but retains the rest. This is a form of ‘partial churn’ and should be factored into your calculations. Consider calculating both ‘total churn,’ where you track complete subscription cancellations, and ‘item-level churn,’ which focuses on individual products that have been dropped. By aggregating this data, you can arrive at a nuanced understanding of churn, giving you a clearer picture of both customer and product-level retention.
The formula for calculating customer churn rate is simple: (Number of Customers Churned / Number of Customers at Start of Period) x 100. But in a multi-item subscription model, you could also add another layer by calculating the churn for each product: (Number of Specific Items Dropped / Total Number of That Item at Start of Period) x 100. Both metrics are invaluable; the first gives you a macroscopic view, while the second zooms in on possible product-specific issues. By keeping a close eye on these numbers and acting on the insights they provide, you can fine-tune your offerings, improve customer satisfaction, and ultimately, boost your bottom line.