Glossary
Churn rate
Churn rate is the percentage of customers, or of recurring revenue, that a company loses over a set period, usually a month or a year. It is the main retention measure for subscription businesses.
What Is Churn Rate?
In short There are two common versions.
Customer (logo) churn counts accounts that cancel. Revenue churn counts the recurring revenue lost to cancellations and downgrades, which matters more when customers pay very different amounts. Count only customers active at the start of the period, so sign-ups during the month do not distort the rate.
Churn compounds. A 3% monthly customer churn rate loses about 31% of customers over a year (1 - 0.97^12), so the company has to win back almost a third of its base every year just to stay flat.
Churn Rate Example
Customer churn rate = customers lost during the period / customers at the start of the period x 100. Gross revenue churn = recurring revenue lost to cancellations and downgrades / recurring revenue at the start of the period x 100.Example: a SaaS company starts the quarter with 800 customers and loses 24 by the end. Quarterly customer churn is 24 / 800 x 100 = 3%. If those 24 customers paid $36,000 of its $400,000 MRR, revenue churn is 9%, which tells the team it is losing its larger accounts.
Churn Rate in Practice
For sales teams, churn sets what a new customer is worth. High churn shortens customer lifetime value, which caps what you can spend to acquire a customer. Many outbound teams compare churned accounts with their best customers to tighten the ideal customer profile, and run win-back campaigns to former customers.
FAQ
How do you calculate churn rate?
Divide the customers lost during the period by the customers you had at the start, then multiply by 100. For revenue churn, use the recurring revenue lost to cancellations and downgrades instead of customer counts.
What is a good churn rate?
There is no single benchmark. Churn varies a lot by company stage, category and price point, so compare yourself with businesses that sell to the same size of customer on similar contract lengths.
What is the difference between churn rate and retention rate?
For the same group of starting customers, retention rate is 100% minus churn rate. A 5% annual churn rate means 95% of the customers you started the year with are still there.
What is the difference between gross and net revenue churn?
Gross revenue churn counts only losses from cancellations and downgrades. Net revenue churn subtracts expansion revenue from existing customers, so it can turn negative when upsells are bigger than losses.
Do This in Ken
Do This in Ken
Run a win-back sequence in Campaigns to customers who left in the last year and see who answers in Inbox. Before you build the next list, compare the accounts that churned with the ones that stayed.
- Module
- Campaigns
- Open in Ken
- /how-it-works
The new Ken opens to the waiting list in batches.
Related
Sources
| Source | Checked |
|---|---|
| Stripe: How to calculate customer churn rates | |
| ChartMogul: Customer churn rate | |
| ChartMogul: Revenue churn |
Changelog
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