Churn Rate

What Churn actually means

Churn comes in two flavors that answer different questions. Logo churn counts customers leaving. Revenue churn counts dollars leaving. A company can lose 10 percent of its customers and 2 percent of its revenue if the departures are all small accounts, and that is a fundamentally healthier picture than the reverse. Presenting only one of the two is how bad news stays hidden.

Worked example

A business starts the quarter with 1,000 customers and 500,000 dollars of MRR, then loses 80 customers representing 15,000 dollars of MRR. Logo churn is 8 percent while revenue churn is 3 percent, so the losses sit in the smallest accounts. Had the same 8 percent carried 60,000 dollars of MRR, the story would be an enterprise retention crisis.

Why the board cares

Churn determines whether growth compounds or leaks. It also sits underneath LTV, so every churn assumption in a lifetime value model is a claim the board can test against actuals. Rising churn invalidates the LTV number, which invalidates the LTV to CAC ratio, which invalidates the entire spending case built on top of it.

Common mistakes

• Reporting logo churn only, which conceals whether the company is losing its largest customers.
• Annualizing monthly churn by multiplying by twelve, which understates the compounding effect.
• Excluding customers who downgraded rather than cancelled, which hides contraction inside a clean churn number.

Related terms

• Net Revenue Retention (NRR)
• Customer Lifetime Value (LTV)
• Cohort Analysis
• Monthly and Annual Recurring Revenue (MRR, ARR)

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