Churn rate
Also known as: customer churn, attrition rate, customer churn rate, logo churn
Churn rate is the share of customers active at the start of a period who stopped buying, cancelled or did not renew by the end of that period.
Churn rate = customers lost in period / customers at start of period × 100%Churn rate measures how fast the customer base leaks. It is the complement of retention rate and counts customers, so a small account and a large one weigh the same. Revenue churn, which weighs accounts by money, is a separate number and shows up in net revenue retention.
Example
A payments company starts March with 1,200 merchants on paid plans. During March, 30 cancel and 6 more stop processing and are moved to inactive.
Churn rate: (30 + 6) / 1,200 = 3% per month.
At 3% a month, roughly 31% of the starting merchants are gone after twelve months (1 − 0.97¹²). Monthly and annual churn are not linked by multiplying by 12. The figures are illustrative.
How to use it
Decide what “lost” means for your model. For a subscription it is a cancellation or a failed renewal. For a business without contracts, such as a clinic or a marketplace, it is a customer with no purchase for a defined window. Write the rule down and keep it.
Then split churn by reason and by cohort. Voluntary churn (the customer chose to leave) needs product or service work. Involuntary churn (an expired card, a failed payment) often needs nothing more than a dunning sequence. Read churn next to MRR to see whether the customers you lose are small or large.
Common mistakes
- Dividing by customers at the end of the period, which makes churn look lower in a growing business.
- Counting customers acquired and lost inside the same month, which mixes onboarding failure with churn.
- Annualising monthly churn by multiplying by 12.
- Excluding customers you offboarded yourself without labelling them, so the trend shifts for reasons nobody can see.