Churn Rate
Churn rate is the percentage of customers, or of recurring revenue, that a company loses over a given period through cancellations or non-renewals.
Also called: customer churn, attrition rate
Why it matters
Churn works against growth. Every lost customer has to be replaced before the business can grow, and a high churn rate raises the effective cost of acquiring each customer. It is also a signal: rising churn often points to problems with fit, onboarding, product value or the customers that sales is bringing in.
Customer churn counts lost accounts, while revenue churn counts lost recurring revenue, and the two can differ when large and small customers leave at different rates. A common formula divides the customers lost during a period by the customers at its start. Teams usually look at churn by segment, cohort and reason to find what to fix.
Example
A company starts the quarter with 400 customers and 20 cancel during the quarter, a customer churn rate of 5 percent. The 20 customers were mostly small accounts, so they represented only 2 percent of recurring revenue. Interviews show most had never finished onboarding, so the team adds an onboarding check in the first month.
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