"What's your churn?" sounds like a question with one answer. It has at least three, and they can point in different directions. Knowing which is which stops you from panicking over the wrong number, or relaxing over the wrong one.
Three kinds of churn
- Customer churn (logo churn): customers who cancelled ÷ customers at the start of the period.
- Gross revenue churn: MRR lost to cancellations and downgrades ÷ starting MRR.
- Net revenue churn: the same, minus expansion revenue from existing customers. It can go below zero.
One month, three answers
A company starts the month with 1,000 customers and $50,000 of MRR. It loses 30 customers worth $1,200 of MRR, and existing customers upgrade by $1,500.
Monthly churn
30 ÷ 1,000equals3%
Annual churn
1 − (1 − 3%)¹²equals30.6%
Net revenue churn
($1,200 − $1,500) ÷ $50,000equals-0.6%
Customer churn is 3%, which compounds to 30.6% a year. But revenue churn is only 2.4%, because the customers leaving were smaller than average. And after upgrades, net revenue churn is negative: the existing customer base grew by 0.6% without a single new sign-up.
What each number tells you
Customer churn is the best signal of product fit and onboarding. If it is high, people are not getting enough value to stay. Revenue churn tells you whether the customers leaving are the ones that matter financially. Net revenue churn tells you whether your existing customers alone can grow the business.
Watch for the dangerous combination: low customer churn with high revenue churn. It means a few large accounts are leaving or downgrading, and those losses are hard to replace.
Tip: Exclude customers who joined and cancelled in the same month from customer churn, or a big sign-up campaign will make churn look worse than it is.