Key Terms Related to Churn, Defined
“If you wish to converse with me, define your terms.” ~ Voltaire
Next week, we’ll be launching the first of several blog posts about data—specifically about how our customers can use their data in Recurly to improve and optimize their business. Our first post focuses on churn, which is always a key topic of interest for subscription-based businesses. But before we dive into the blog series, we thought it might be a good idea to quickly review the meaning of some different terms related to churn.
Voluntary churn results from a customer who actively chooses to cancel their subscription with you or otherwise not continue their subscription—for example, by not renewing or by not continuing their subscription at the end of a free trial or gift subscription term. Even if a customer cancels their subscription, if it’s in the middle of a billing cycle, the subscription won’t expire until the end of the subscription billing period, for example at the end of the month.
Cancellation is when a customer has cancelled their subscription but it has not yet expired.
Expiration indicates the point in time when the business no longer has that subscription on their books. For example, if a customer cancels their subscription in the middle of a billing cycle, the subscription won’t expire until the end of the billing period. When the subscription expires, this is considered churn.
Involuntary churn happens indirectly, from a passive customer action. For example, a customer’s credit card could expire or be replaced, resulting in the payment failing, the invoice going into dunning, and the subscription ultimately expiring.
Subscriber churn equals the total number of subscribers who have churned during the month, divided by the number of subscribers active at the beginning of the month. This calculation, when multiplied by 100, then provides a rate, such as 5%. A subscriber with more than one subscription will not churn until their last subscription expires. You can also break out this rate out into voluntary and involuntary churn, as defined above.
A subscriber is an account with at least one active subscription. If a subscriber has, for example, two active subscriptions, they could churn one subscription and not be counted in a Subscriber Churn rate. For this reason, some businesses prefer to track subscription churn and subscriber churn separately. This decision depends on whether you want to track the people or the products that churn.
Look for the first post in our Actionable Insights blog series, which focuses on the difference between a cancellation and churn, next week.