Churn is the rate at which customers stop paying for a product over a given period. It is the main force working against growth in subscription businesses, and reducing it is often worth more than acquiring new customers.
What it means
Customer churn is the percentage of customers who cancel in a period. Revenue churn is the share of recurring revenue lost to cancellations and downgrades. The two can differ: a company may lose many small customers and little revenue, or the reverse.
How it is calculated
For customer churn, divide the number of customers lost during a month by the number at the start of the month. For revenue churn, divide the lost recurring revenue by the revenue at the start. Teams track both monthly and by cohort, since new customers usually leave at a higher rate than established ones.
Why it matters
A small monthly churn rate compounds into a large annual loss. It also sets a ceiling on the lifetime value of a customer, because the average customer stays for roughly the inverse of the churn rate. Some businesses reach negative revenue churn, where expansion from existing customers exceeds what is lost to cancellations.
Common causes
- Poor onboarding, so users never reach value.
- A product that solves a weak or occasional problem.
- Price changes or billing failures.
- Competitors that offer a better option.
- Customers who were never a good fit.
Common mistakes
Looking only at the average hides problems in particular cohorts or plans. Another mistake is ignoring involuntary churn, which comes from expired cards and failed payments and can be reduced with simple reminders.
In launch work
A launch can inflate sign ups while masking weak retention. Founders who track churn from the first cohort learn quickly whether the product truly fits the audience it attracted.
Related entries
See Monthly recurring revenue, Customer lifetime value, Product-market fit and Customer acquisition cost.
Churn is part of Revenue and funding.