Customer churn rate: formula and how to reduce it

The churn rate formula

Churn rate = Customers lost in period ÷ Customers at start of period Retention rate = 1 − Churn rate

Customers at start

active customers at the beginning of the period

Customers lost

of those, how many became inactive by the end

Count only customers who were active at the start. New customers acquired during the period belong in the next period's starting count.

The ecommerce caveat: defining "lost"

Subscription businesses know exactly when a customer leaves. A Shopify store doesn't, so you set a repeat-purchase window: a customer counts as lost if they haven't bought within that window.

Choose a window that fits your products:

Set the window to roughly the time by which most of your repeat customers have bought again. Look at your order history for the typical gap between first and second orders.

Worked example

Worked example: one quarter, 180-day windowExample numbers

Input	Value
Active customers at the start of the quarter (bought in the previous 180 days)	2,000
Of those, customers with no purchase in the 180 days to quarter end	700

1. Churn rate = 700 ÷ 2,000 = 35%
2. Retention rate = 1 − 0.35 = 65%

Why churn matters: CAC payback

Every customer you keep is one you don't have to pay to replace. Retention also decides whether your customer acquisition cost pays back:

• If it takes 2 orders to recover what you paid to acquire a customer, a customer who churns after one order never pays back.
• Lowering churn means more customers reach their second and third orders, where the profit is.

Customer Acquisition Cost Payback CalculatorHow many orders it takes to pay back what you spent acquiring a customer.Open calculator

The guide to customer acquisition cost covers payback in orders and months.

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How to reduce churn

• Nail the first order. Fast shipping, good packaging and an accurate product page set up the second purchase.
• Follow up after delivery with care tips, how-to content or a review request, not just discounts.
• Remind customers to reorder consumables when they're likely to run out.
• Win back lapsing customers just before they cross your churn window.
• Make reordering easy, with saved carts, one-click reorders or subscriptions for consumables.
• Raise the value of each order. Bigger first orders earn back more of CAC before churn can bite. See the guide to average order value.

Common churn mistakes

• Counting new customers in the denominator. Only customers active at the start of the period count.
• Using a window that's too short. Customers who reliably buy twice a year will look churned under a 60-day window.
• Reporting one store-wide number. Churn varies a lot between first-time and repeat customers, and by acquisition channel. Split it.