Churn
Churn is the loss of customers or revenue when people stop using or paying for a product. Churn rate expresses that loss as a percentage of the customers or recurring revenue a business had at the start of a period. It is the inverse of retention: a 5% monthly customer churn rate means 95% of the customers you started the month with are still there.
How Churn Works
Churn is measured in two main ways, and they can tell different stories.
Customer churn (also called logo churn) counts accounts:
Customer churn rate = Customers lost during period / Customers at start of period x 100
Customers who both joined and left within the same period are usually left out, so they do not distort the rate.
Revenue churn weights losses by how much each customer paid, using Monthly Recurring Revenue (MRR):
Gross MRR churn rate = (Churned MRR + Contraction MRR) / MRR at start of period x 100
Net MRR churn rate = (Churned MRR + Contraction MRR - Expansion MRR - Reactivation MRR) / MRR at start of period x 100
When expansion from existing customers is larger than losses, net MRR churn becomes negative, known as negative churn. That is the same situation as Net Revenue Retention (NRR) above 100%.
Churn also has different causes. Voluntary churn is a deliberate cancellation. Involuntary churn happens when a payment fails, for example because a card expired, and ChartMogul notes it can account for up to a third of all churn. In free products, teams often track usage churn: users who stop being active, even though they never paid.
Why Churn Matters
Churn caps growth. Every customer lost must be replaced before the business can grow, and the effect compounds: a 5% monthly churn rate loses about 46% of the starting customers over a year. High churn also lowers customer lifetime value, which raises the effective cost of every customer acquired.
The headline rate is only a starting point. Diagnosing why customers leave matters more, through exit surveys, support history, behavior before cancelling, and cohort analysis that shows whether newer groups churn less than older ones. For a deeper method, see diagnosing churn from leading behavioral signals before users leave.
Churn Example
A SaaS business starts the month with 400 customers and $40,000 in MRR. During the month:
- 20 customers cancel, taking $1,800 of MRR.
- Other customers downgrade, removing $400.
- Existing customers upgrade, adding $1,000.
Customer churn rate = 20 / 400 = 5%. Gross MRR churn rate = (1,800 + 400) / 40,000 = 5.5%. Net MRR churn rate = (1,800 + 400 - 1,000) / 40,000 = 3%.
Revenue churn is higher than customer churn here because the cancelled accounts paid more than average. The team checks whether one segment, plan or missing capability explains it.
Churn vs. Retention
Churn and retention describe the same movement from opposite sides. Retention highlights who stays and is often plotted as a curve over time. Churn highlights who leaves in a given period and is usually reported as a monthly or annual rate. Teams use retention to judge long-term product value and churn to spot and react to losses quickly.