What is churn rate?

The short definition

Churn is customers leaving. The churn rate puts a number on it: of the customers who were paying at the start of the month, what share canceled by the end? Lose 10 of 200 and monthly churn is 5%.

It is the counterweight to growth. MRR goes up when you add customers and down when they leave, so two products adding the same number of customers a month can end the year in very different places.

Customer churn, revenue churn and net churn

• Customer churn (or logo churn): customers lost divided by customers at the start.
• Revenue churn (gross MRR churn): MRR lost to cancellations and downgrades, divided by MRR at the start.
• Net revenue churn: revenue churn minus expansion, the extra MRR existing customers added. It can be negative, which means the customers you keep grow faster than the ones you lose shrink.

The two can tell different stories. If your three biggest customers leave, customer churn barely moves while revenue churn jumps. Stripe's own Billing analytics treats a subscriber whose MRR drops to zero as churned, and counts downgrades as contraction in churned revenue.

Why monthly churn compounds

Monthly churn sounds small and is not. Keeping 95% of customers a month leaves about 54% after twelve months, so 5% monthly churn is roughly 46% a year. One divided by monthly churn is the average customer lifetime: 20 months at 5%, 50 months at 2%.

That lifetime is what customer lifetime value is built on, which is why cutting churn from 5% to 3% is often worth more than a bigger launch. Work out your own numbers with the churn rate calculator.

Measuring it without fooling yourself

Count customers, not subscriptions. Leave out free users and trials that never paid. Use the same window every time, usually a calendar month. With very few customers, average three or six months, because one cancellation can double the rate.

Payment failures are a quiet source of churn. A card that expires and never gets updated is a customer you lose without a decision on their part, so make sure failed payments are retried and customers are emailed. For the other numbers worth tracking next to churn, see SaaS metrics for indie hackers.