GlossaryGrowth & analytics
What is churn rate?
Also called: churn, customer churn, revenue churn, attrition
Definition
Churn rate is the percentage of customers, or of recurring revenue, lost during a period. Monthly customer churn is customers who cancelled this month divided by customers you had at the start of the month.
Churn rate, explained
Churn is retention's mirror image. If you start the month with 200 paying customers and 10 cancel, customer churn is 5% for the month. Revenue churn does the same with recurring revenue: if those 200 customers paid $10,000 a month in total and cancellations and downgrades removed $600, gross revenue churn is 6%.
Keep the two apart, because they can tell different stories. Losing many small customers and keeping big ones gives high customer churn and low revenue churn. Net revenue churn also subtracts expansion revenue from upgrades; it can go negative when existing customers grow faster than others leave.
Monthly percentages compound quickly. A 5% monthly churn means you keep roughly 54% of a cohort after a year (0.95 to the power of 12). Don't multiply monthly churn by twelve to get annual churn; it overstates the loss and misleads planning.
Break churn down by cohort, plan, acquisition channel and reason. Voluntary churn (people choosing to leave) needs product and fit fixes. Involuntary churn (failed payments) needs better billing: retries, card updaters and reminder emails. Asking one question at cancellation, "what's the main reason?", gives you a rough map of which is which.
Early on, churn numbers are noisy because the counts are small. Five cancellations out of forty customers is 12.5%, but the story is in those five conversations, not the percentage. Talk to people who leave.
Why it matters for founders
Churn caps how big a subscription business can get from any amount of acquisition. Understanding where it comes from tells you whether to fix product, fit, onboarding or billing.
Example
A SaaS startup's churn is 7% a month. Breaking it down shows 3 points are failed payments. Adding payment retries and card-update emails cuts churn to 4.5% without any product changes.
Common mistakes
- Multiplying monthly churn by 12 to estimate annual churn.
- Mixing customer churn and revenue churn in one number.
- Ignoring involuntary churn from failed payments.
Related terms
- RetentionRetention is the share of users or customers who keep using or paying for your product over time, usually measured for a cohort that started in the same period. It's the clearest signal that a product delivers lasting value.
- Monthly recurring revenue (MRR)Monthly recurring revenue (MRR) is the normalized amount of subscription revenue a business expects to receive every month from its active customers, excluding one-time fees and usage that isn't committed.
- Customer lifetime value (LTV)Customer lifetime value (LTV) is an estimate of the total gross profit a business will earn from a typical customer over the whole time they stay a customer. It's compared with CAC to judge whether acquisition is worth it.
- Cohort analysisCohort analysis groups users by a shared characteristic, usually when they started, such as sign-up week, and tracks each group's behavior over time, so you can compare how different groups retain, activate or pay.