What is Churn Rate?
Churn rate is the share of your customers, or of your revenue, that you lost during a period. Which of the two you mean changes the number substantially, so the qualifier matters as much as the figure.
Customer churn counts logos: how many of the customers you started the month with are gone by the end of it. Every customer weighs the same, whether they paid you $20 or $20,000.
Revenue churn counts dollars, and comes in two flavors. Gross MRR churn counts only the losses, cancellations plus downgrades, against starting MRR. Net MRR churn subtracts the expansion and reactivation you earned from existing customers in the same period, so it can be negative when upgrades outrun losses. Negative net churn is the number investors look for, because it means the book grows without a single new customer.
Whichever you use, be explicit about the base. Churn is always measured against where you started the period, never against where you finished, or the arithmetic flatters you as you grow.
How to calculate Churn rate
Customer churn rate = customers lost ÷ customers at the start of the period x 100
- customers lost
- customers who were paying at the start and are not by the end
- customers at the start
- the count at the close of the previous period
The two revenue variants
Gross MRR churn = (churned MRR + contraction MRR) ÷ starting MRR x 100 | Net MRR churn = (churned + contraction − expansion − reactivation) ÷ starting MRR x 100
Churn rate example
Given
- Start of month: 320 customers, $48,000 MRR
- Lost during the month: 11 customers carrying $1,900 of MRR
- Downgrades: $820 of contraction
- Upgrades and reactivations from existing customers: $1,450 + $300
One month, three defensible churn rates between 2% and 5.7%. Quoting a churn number without saying which one you mean is close to quoting nothing.
Why Churn rate matters
- Churn sets the ceiling on growth. At 5% monthly churn you replace your entire book roughly every 20 months before you grow at all.
- It is the denominator of lifetime value, so a churn figure that is off by a point moves LTV, payback and every acquisition decision that depends on them.
- Churn by segment usually tells a sharper story than churn overall. A healthy blended rate can hide a self-serve tier bleeding badly under an enterprise tier that never leaves.
Common Churn rate mistakes
Annualizing by multiplying by 12
Churn compounds against a shrinking base. 5% monthly churn is about 46% annualized, not 60%. The right conversion is 1 − (1 − monthly)^12.
Dividing by the end-of-period count
Using the ending base makes churn look lower the faster you grow, because new customers who never had a chance to leave pad the denominator.
Counting a failed payment as a cancellation
Dunning is not churn. If the retry succeeds three days later you have booked a churn and a reactivation that never happened, and both rates are now wrong.
Comparing your customer churn to someone else's revenue churn
Benchmarks float around without qualifiers constantly. Match the flavor and the period before drawing any conclusion from a comparison.
How Kometrics computes Churn rate
Kometrics reports all three as separate metrics. Customer churn rate is net churned customers ÷ customers at the period start. Gross MRR churn rate is net churn plus net contraction over starting MRR. Net MRR churn rate additionally subtracts expansion and reactivation, so it goes negative when upgrades outweigh losses.
Two details are worth knowing. Customer churn and gross MRR churn combine each customer's movements within the period into a single net movement first, so a customer who downgrades and then cancels in the same month counts once, not twice. And the in-progress period is extrapolated to a full period (scaled by days elapsed) so that a rate read on the 5th is not automatically a fifth of the truth.
Related terms
Net revenue retention is what happened to the revenue you already had. Take a cohort of existing customers, add the expansion they bought, subtract what they downgraded or cancelled, and compare against what they were worth at the start. New customers are excluded by definition.
GRRGross revenue retention is the share of existing revenue you held onto, counting only the losses. Downgrades and cancellations count against you; expansion earns no credit, so GRR can never exceed 100%.
LTVCustomer lifetime value estimates how much revenue a single customer produces across their whole relationship with you. In subscription businesses it is derived from average revenue per account and churn rather than observed directly, because most customers have not left yet.
Contraction MRRContraction MRR is recurring revenue lost from customers who stayed: downgrades, removed seats, dropped add-ons and expired discounts running the other way. The customer is still yours, they are simply worth less.
Cohort retentionCohort retention groups customers by the month they started paying and follows each group forward, so you can see how long customers stay and how their spend develops, without newer customers masking older ones.
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