What is churn (churn rate)
Also known as: churn rate, customer attrition, cancellation rate
Churn is the rate of customers who stop buying or cancel during a period, relative to those the business had at the start. A 5% monthly churn means that out of every 100 customers at the start of the month, 5 were gone by the end. It is the core metric for subscription and recurring businesses, because every lost customer has to be replaced before the company can grow.
Churn = customers lost in the period ÷ customers at the start of the period × 100
Customers acquired during the period stay out of the denominator: the math measures how many of the starting base left. Mixing new customers into it makes churn look lower than it is.
A management software company started March with 800 paying customers. During the month, 32 cancelled. March churn was 32 ÷ 800 × 100 = 4%.
It looks small, but 4% a month means losing about 39% of the base in a year if nothing changes: each month 96% of customers remain, and 0.96 to the 12th power is 0.61. To grow, the company has to win more than 32 customers every month.
Customer churn and revenue churn
Customer churn counts people or accounts. Revenue churn counts money: how much recurring revenue was lost to cancellations and downgrades. They tell different stories. Losing ten small customers weighs less than losing one big one, and customer churn treats both cases the same.
There is also net revenue churn, which subtracts what remaining customers started paying extra through upgrades or expansion. When expansion exceeds losses, net churn turns negative: the existing base grows in revenue even without new customers.
| What it measures | When to use it | |
|---|---|---|
| Customer churn | How many accounts left | Relationship health |
| Revenue churn | How much recurring revenue left | Financial impact |
| Net churn | Losses minus expansion | Whether the base grows on its own |
Why churn matters so much
A 2014 Harvard Business Review article sums up the argument: depending on the study and the industry, acquiring a new customer costs anywhere from 5 to 25 times more than keeping an existing one. The same piece cites research by Frederick Reichheld of Bain & Company, the creator of NPS, showing that increasing customer retention by 5% increases profits by 25% to 95%.
The figures vary by study, but the logic holds: churn feeds directly into LTV, the value of a customer over time. Lower churn means customers who stay longer, pay more times and justify spending more to win the next one.
How to reduce churn
- Find out why people leave. A short question at cancellation and calls to departed customers reveal patterns no dashboard shows.
- Take care of the start. Many cancellations happen in the first months, when customers have not managed to get value from the product. Good onboarding prevents a large share of them.
- Watch the warning signs. Falling usage, repeated support tickets and late payments often come before a cancellation.
- Offer an alternative to cancelling. A pause, a smaller plan or a different billing period keeps people leaving for a temporary reason.
- Separate voluntary from involuntary churn. A declined card is not dissatisfaction, and it is fixed with better billing, not with a discount.
Common measurement mistakes
- Including the month's new customers in the denominator.
- Looking only at the average of the whole base, when one plan or channel concentrates the cancellations.
- Measuring customer churn and ignoring revenue churn.
- Treating late payment and cancellation as the same thing.
Frequently asked questions
What is churn?
The rate of customers who cancel or stop buying in a period, relative to the customer base at the start of that period.
How do you calculate churn rate?
Divide the number of customers lost in the period by the number of customers at its start and multiply by 100. 20 cancellations from a base of 500 is a 4% churn rate.
What is negative churn?
When the extra revenue existing customers start paying, through upgrades or expansion, exceeds the revenue lost to cancellations. The base grows in revenue even without new customers.
How are churn and LTV related?
Directly. In the recurring revenue LTV formula, churn sits in the denominator: cutting churn in half doubles LTV.
Does churn only apply to subscriptions?
It is most common in subscription and recurring businesses, but any business can measure how many customers stopped buying in a period, such as stores and services with repeat customers.
Related terms
- LTVLTV (lifetime value, also called CLV) is the value a customer generates for a business over the entire time...
- CACCAC (customer acquisition cost) is how much a business spends, on average, to win each new customer. You add...
- KPIA KPI (key performance indicator) is a number chosen to show whether a business is reaching a specific goal...
- Customer journeyThe customer journey is the path a person takes from the first sign of a need to the purchase, and beyond it...
Rodrigo Fávaro
Founder of ROO3, a marketing and technology agency in São José do Rio Preto, Brazil. Builds AI products running in production (Tobia, gerar.app, Pense Mercado) and maintains the AI Benchmark, a public ranking of AI models.
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