Press commentary on churn rate and its effect on the evaluation of direct-to-consumer brands. Read the full article.

 

“Churn is another metric that’s particularly important to subscription-based companies. It refers to the percentage of customers a company loses on average within a given period of time, like on a quarterly or monthly basis. Churn is typically calculated by dividing the number of customers who canceled by the total number of customers.

As with any other metric, DTC brands who rely on churn have found ways to make that rate look as low as possible. Richie Siegel, the founder and lead analyst of retail consulting firm Loose Threads, said in an email that some companies “will only report on early cohorts, which are usually more promising since they are comprised of early adopters who are more open to trying new products and services.”

Additionally, how “good” of a churn rate is depends on both how many customers a company loses, and how many customers in total a company has. For example, investors will probably look more favorably on a company that has a churn rate of 3% and a subscriber base of 100,000, compared to a company that has a churn rate of 1% but a subscriber base of only 10,000.

“It’s important to think about why a company is sharing the selective info they are and what is missing, and only then can you start to get a good picture of reality,” Siegel wrote.”