How it's calculated
Churn measures how much of your existing business you lose over a period. There are two kinds, and they can tell different stories:
- Customer (logo) churn counts customers: how many of those you had at the start cancelled.
- Revenue churn counts recurring revenue: the MRR lost to cancellations and downgrades, as a share of the MRR you started with.
These are the definitions David Skok set out in his widely used SaaS metrics guide: customer churn = customers who churned ÷ total customers, MRR churn = churned MRR ÷ previous month's MRR, and net MRR churn subtracts expansion MRR.David Skok, For Entrepreneurs Zoom reports its online churn the same way, as the MRR of customers who cancelled or downgraded in a quarter divided by the starting MRR, then divided by three for a monthly figure.SEC (EDGAR)
The formula
- Customer churn = customers lost ÷ customers at the start
- Gross revenue churn = (churned MRR + contraction MRR) ÷ starting MRR
- Net revenue churn = (churned + contraction − expansion) ÷ starting MRR
- Gross revenue retention = 1 − gross revenue churn; net revenue retention = 1 − net revenue churn
- Annualised churn = 1 − (1 − period churn)periods per year
Worked example
Losing 20 of 1,000 customers in a month is 2% monthly churn, which compounds to 21.5% a year, not 24%. With $100,000 of starting MRR, $3,000 lost to cancellations and downgrades and $4,000 of upgrades, net revenue churn is -1%: upgrades more than replace what was lost.
| Line | Amount |
|---|---|
| Starting MRR | $100,000 |
| Churned MRR | -$2,000 |
| Contraction MRR | -$1,000 |
| MRR kept from existing customers (GRR) | $97,000 |
| Expansion MRR | $4,000 |
| MRR from the same customers (NRR) | $101,000 |
Assumptions and limitations
- New customers are excluded from both the numerator and denominator, so churn reflects only the customers you started with.
- Annualising assumes the rate repeats. Churn usually falls as customers age, so a young company's annualised figure can overstate long-run churn.
- Blended rates hide differences between plans and customer sizes; calculate churn per segment where you can.