Defining Churn Rate

The definition of churn rate was the subject of a shareholders' lawsuit against Netflix in 2004. The shareholders accused Netflix of reporting an artificially low churn rate using:<p><pre><code> Number of Customers churn / (Number of customers at beginning + number of customers gained). </code></pre> Where the plaintiffs preferred:<p><pre><code> Number of Customers churn / (Number of customers at beginning + number of customers at end of period)/2. </code></pre> Netflix succeeded in having the suit dismissed, since there is no official way to calculate churn.<p><a href="http://www.globenewswire.com/newsroom/news.html?d=62086" rel="nofollow">http://www.globenewswire.com/newsroom/news.html?d=62086</a><p><a href="http://www.docstoc.com/docs/33875708/In-Re-Netflix-Inc-Securities-Litigation-04-CV-2978" rel="nofollow">http://www.docstoc.com/docs/33875708/In-Re-Netflix-Inc-Secur...</a>

There isn't a good definition. At Dropbox, we try to answer the question: what percentage of signups 56 days ago were active 1-28 days ago? For larger time periods, just look at the sum of each day over the window (sum-of-retained/sum-of-signups. 28/56 day windows are useful to keep the same number of weekends.<p>This reports the most recent signups for which there is good data, but is lagging. You could look at another action that causes people to be retained that happens earlier in the funnel to run an actionable test in a reasonable period of time.<p>Looking at cohort analysis historically will get you a good understanding of the percentage of users that are active after N time periods.

What if there is seasonality in your Churn (lets say in your example monthly, which is very reasonable) and you are growing?<p>If you calculate at the wrong time you will severely skew the numbers.<p>-<p>Its my opinion that if you have daily churn numbers and you want to be the most accurate, simple formula is no longer viable. You should model daily churn against daily sales and create a revenue model. (takes about 2 minutes in excel, less if you have the data already in a spreadsheet).<p>- If you want a simple formula, you should use the first two formulas you described in the article and just see how the numbers "feel".<p>In my opinion, anything beyond that introduces unnecessary levels of complexity that may actually make your modeling less valuable.<p>- In any event, the article is great and really got me to think about churn again. Well done, and I really liked your thoughts.