Complete Definition
Churn rate measures the percentage of customers (or revenue) that stop using your product or service during a given period. It's one of the most critical metrics for subscription businesses because it directly impacts growth sustainability.
Even small differences in churn can have massive long-term effects. A business with 2% monthly churn versus 5% monthly churn will have dramatically different outcomes over time.
Types of Churn
**Customer Churn (Logo Churn)** Percentage of customers who cancelled. Customer Churn = (Customers Lost ÷ Starting Customers) × 100
**Revenue Churn (MRR Churn)** Percentage of revenue lost. Revenue Churn = (MRR Lost ÷ Starting MRR) × 100
Gross vs Net Churn
- **Gross Churn**: Only counts lost revenue - **Net Churn**: Accounts for expansion revenue (can be negative!)
Churn Benchmarks
- **Excellent**: < 2% monthly / < 5% annual - **Good**: 2-5% monthly / 5-7% annual - **Concerning**: 5-7% monthly / > 10% annual - **Critical**: > 7% monthly
Why Churn Matters
- Determines LTV ceiling - Impacts growth efficiency - Indicates product-market fit - Affects company valuation significantly