Churn Rate
Also: Customer Churn, Attrition Rate, Revenue Churn, Logo Churn
Churn rate is the percentage of customers or revenue lost over a period. It measures how fast a business loses its existing customer base.
What It Is
Churn rate measures the rate at which customers stop doing business with a company over a defined period (a month, quarter, or year). It is one of the most watched retention metrics in subscription and recurring revenue businesses. Churn can be expressed two ways:
- Customer churn (logo churn): the share of customers who cancel or do not renew.
- Revenue churn: the share of recurring revenue lost, often tracked as gross revenue churn (revenue lost before expansion) and net revenue churn (revenue lost after upgrades and cross-sells from retained customers).
A common formula for customer churn:
`Churn rate = (Customers lost during period / Customers at start of period) x 100`
If a company starts a month with 1,000 customers and loses 40, the monthly churn rate is 4 percent.
Why it matters
Churn directly shapes growth, valuation, and unit economics.
- Growth ceiling: high churn forces you to acquire new customers just to stand still. Growth only happens when new and expansion revenue outpaces churn.
- Lifetime value: churn determines average customer lifetime. At 4 percent monthly churn, the average customer stays about 25 months (1 / 0.04).
- Profitability: acquiring a new customer typically costs far more than retaining one, so reducing churn improves return on acquisition spend.
- Net revenue churn below zero (negative churn) means expansion revenue exceeds losses, a strong signal investors prize.
How it is used in practice
- CFOs use churn to forecast recurring revenue, model lifetime value to acquisition cost (LTV:CAC) ratios, and assess revenue durability for planning and valuation.
- CMOs segment churn by cohort, channel, plan, or persona to find where retention breaks and to target win-back campaigns.
- Data teams build predictive churn models that flag at-risk accounts using usage signals, support tickets, and payment data.
Teams pair churn with retention rate (its complement) and watch trends rather than single numbers.
Concrete Example
A SaaS firm starts the quarter with 200 monthly recurring revenue (MRR) of $500,000. During the quarter it loses $30,000 from cancellations and downgrades but gains $50,000 from upsells to existing customers.
- Gross revenue churn = 30,000 / 500,000 = 6 percent.
- Net revenue churn = (30,000, 50,000) / 500,000 = -4 percent (negative, meaning the existing base grew).
This shows why a single churn number can mislead: the same company has positive gross churn but healthy negative net churn.