Customers and pricing
Churn and retention
The share of customers who leave in a period, and the share who stay.
Facts checked against sources onWhat does Churn and retention mean?
Churn rate is the share of customers who stop buying in a period; retention rate is the share who stay, so retention = 1 minus churn. 3% monthly churn means about 31% of customers are lost in a year (1 minus 0.97 to the power of 12), not 36%, because each month's loss applies to a smaller base.
Where does it come up in case interview prep?
- Unit economics in any businessLesson in How industries work: the toolkit
- Business models: who pays, and for whatLesson in How industries work: the toolkit
- Fixed and variable costs, operating leverage, and unit economicsLesson in Business basics for non-business learners
- Industry primers: retail, consumer goods, banking, telecomLesson in Business basics for non-business learners
- Industry primers: airlines, pharma, software, energyLesson in Business basics for non-business learners
- Switching costs, lock-in and habitsLesson in Why some businesses win: competitive advantage and the economics of strategy
- Retention and cohorts: why keeping customers beats winning themLesson in Customers and growth: the economics of marketing
- How media, streaming, and gaming make moneyLesson in Media, streaming, gaming, and advertising
Related terms
- CLV (customer lifetime value)The profit a customer is expected to bring over the whole relationship.
- ARPU (average revenue per user)Revenue divided by the average number of users.
- TAM, SAM and SOMTotal market, the part you can serve, and the part you can win.
- Market shareOur sales as a share of total market sales.
- Relative market shareOur share divided by the largest competitor's share.
- Penetration rateThe share of potential customers who already use the product.
- Share of walletOur share of what one customer spends in the category.
- AOV (average order value)Revenue divided by the number of orders.
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