What is churn rate?
Churn rate is the share of customers or revenue lost in a period. The formula, logo churn versus revenue churn, negative churn, and a worked example.
What is churn rate?
Churn rate is the share of customers, users or revenue lost during a period. It is calculated by dividing the number lost by the number at the start of the period, excluding anyone acquired during it. Logo churn counts customers; revenue churn counts money, and the two can move in opposite directions.
The formula.
Churn rate = (lost during period / total at start of period) x 100
- lost during period
- Customers who cancelled or lapsed. Do not include anyone who joined mid-period.
- total at start
- The count on day one of the period. Using an average balance instead inflates the denominator and understates churn.
Revenue churn uses the same shape with money in both places: MRR lost divided by MRR at the start. Net revenue churn then subtracts expansion revenue from existing customers, and can go negative.
A worked example.
A subscription product in September.
| Customers on 1 September | 820 |
|---|---|
| Cancelled during September | 31 |
| New customers in September | 94, excluded from the calculation |
| MRR on 1 September | $41,000 |
| MRR lost to cancellations | $980 |
| Expansion MRR from existing customers | $1,640 |
Logo churn = 3.8%, gross revenue churn = 2.4%, net revenue churn = -1.6%
Nearly 4% of customers left, yet revenue from the existing base grew. The small accounts are leaving and the large ones are expanding, which is a different business problem from the one logo churn alone describes.
Logo churn, gross revenue churn, net revenue churn
Three metrics, one word, and quoting the wrong one is how board decks get misread.
- Logo churn counts customers, treating a $9 account and a $9,000 account identically. It is the right lens on product-market fit.
- Gross revenue churn counts money lost from cancellations and downgrades. It is what the finance team means by churn.
- Net revenue churn subtracts expansion from existing customers. Below zero, sometimes called negative churn, means the existing base grows on its own even with no new sales.
A healthy SaaS business can run 4% logo churn and negative net revenue churn at the same time. Reporting only the first number makes it look like it is bleeding; reporting only the second hides that the low-end product is not working.
Monthly churn compounds fast
The reason small monthly numbers matter: the survival rate is multiplicative, so an apparently modest monthly rate decides how much of a cohort exists a year later.
| Monthly churn | Retained after 12 months | Average customer lifetime |
|---|---|---|
| 1% | 89% | About 100 months |
| 3% | 69% | About 33 months |
| 5% | 54% | 20 months |
| 8% | 37% | 12.5 months |
| 12% | 22% | About 8 months |
Retained after 12 months is (1 - churn) to the power of 12. Average lifetime is 1 / churn, which assumes a constant rate and so overstates lifetime for products whose churn falls as accounts mature.
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Where churn numbers go wrong
Counting new customers in the denominator
Adding mid-period signups inflates the base and quietly understates churn. Measure against the count at the start of the period.
Annual plans hidden in a monthly rate
Annual subscribers can only churn on their renewal date, so a mixed book produces churn spikes twelve months after every good sales quarter. Segment by billing term.
Involuntary churn ignored
Expired cards and failed payments are often a large share of cancellations, and they respond to dunning emails rather than to product work. Split them out before drawing product conclusions.
No leading indicator
Churn is confirmed weeks after the customer stopped caring. Declining usage frequency, in your product analytics, is the signal that actually arrives in time to act on.
Seeing churn before it is billed
By the time a cancellation is recorded, the decision is old. The useful work happens upstream, in behaviour: accounts whose weekly active usage halved, accounts that stopped using the one feature that correlates with renewal, accounts where the champion stopped logging in.
That is a cohort question, and it is answerable with the same data as retention. Build a cohort of accounts by signup month, watch the activity curve, and the accounts sliding toward the floor are your churn pipeline.
Mrkr does not bill your customers, so it does not know who cancelled. What it can show you is the usage decline that precedes it, from your own events, grouped by cohort.
Questions, answered.
Related terms.
- What is retention rate?
Retention rate is the share of users from a starting group who are still active at the end of a defined period.
- What is cohort analysis?
Cohort analysis groups users by something they share, usually the week or month they signed up, then tracks each group separately over time.
- What is dau/mau ratio?
DAU/MAU is daily active users divided by monthly active users, expressed as a percentage.
- What is north star metric?
A north star metric is the single number a company chooses to represent the core value its product delivers to customers.
- What is product analytics?
Product analytics is the measurement of what people do inside a product rather than how they arrived at it.
Where this shows up in Mrkr
- Spot declining cohorts before they cancel with Mrkr cohort analysis
Usage decline is the leading indicator that a cancellation report cannot give you.
- Read the other side of the same number in retention analysis
- Browse the full analytics glossary
Every metric, method and privacy term, defined in one place.
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