What Is Churn Rate?
Churn measures attrition in a subscription or repeat-purchase business. Logo churn (also called customer churn) counts the share of customers who cancel, while revenue churn counts the share of recurring dollars lost, which weights large accounts more heavily. A company can post low logo churn but high revenue churn if its biggest customers are the ones leaving.
Analysts also distinguish gross churn from net figures. Gross churn captures only losses from downgrades and cancellations, while net measures offset those losses with expansion from remaining customers. Conventions differ by market: consumer subscriptions are usually quoted monthly, whereas enterprise software contracts renew annually, so annual churn is the more natural lens there.
How to Calculate Churn
Customer churn = customers lost during the period ÷ customers at the start of the period. Revenue churn substitutes recurring revenue for customer counts. If a company starts a month with 1,000 subscribers and 20 cancel, monthly churn is 2%. Annualized, that compounds to about 21.5%, since 1 − 0.98^12 ≈ 0.215 — a reminder that seemingly small monthly figures translate into substantial yearly losses.
Churn also implies an expected customer lifetime of roughly 1 ÷ churn rate. A 2% monthly churn rate implies the average customer stays about 50 months, which feeds directly into lifetime value calculations. Cutting churn to 1% doubles that implied lifetime to 100 months, which is why retention improvements are often the highest-leverage move a subscription business can make.
Why Churn Matters
Churn creates a growth treadmill: new bookings must first replace lost revenue before they add anything. A company with $200 million of ARR and 15% annual gross churn must sign $30 million of new business each year just to stand still, and the treadmill speeds up as the revenue base grows. High churn therefore caps how large a business can realistically get.
In private equity and growth investing, churn analysis is a standard part of diligence — buyers rebuild retention by cohort to test whether reported growth is durable. Candidates for those roles should be able to compute churn both ways, explain the difference between gross and net retention, and connect churn to lifetime value in an interview setting.
