Definition of Customer Churn
Customer churn is the rate at which customers cancel or fail to renew their subscriptions or contracts with a business over a given period. It is typically expressed as a percentage of customers lost during that time. Churn is one of the most important metrics for any recurring revenue business because it directly affects growth, revenue stability, and long-term viability.
How Churn Is Measured
Churn is most commonly measured on a monthly or annual basis. A simple customer churn calculation is the number of customers lost during a period divided by the number of customers at the start of that period. For example, if a company starts a quarter with 100 customers and loses 5, the churn rate for that quarter is 5%.
Types of Churn
Churn can be measured in different ways depending on what a business wants to analyze. Customer churn (also called logo churn) measures the percentage of customers lost, regardless of how much they were paying. Revenue churn measures the percentage of recurring revenue lost, which accounts for contract size and is often more meaningful for B2B and SaaS companies.
Churn Explained for a General Audience
For a general audience, churn is simply how many customers stop doing business with a company. A low churn rate means customers are happy and staying; a high churn rate means customers are leaving. In subscription businesses, churn is just as important as new sales, because losing customers can cancel out growth from new ones.
Why Churn Matters
Churn directly impacts growth efficiency. If a company loses many customers, it must spend heavily on sales and marketing just to replace them before it can grow. High churn also reduces Customer Lifetime Value and makes it harder to recover Customer Acquisition Costs.
Churn and Retention
Churn and retention are two sides of the same coin. Retention measures how many customers stay, while churn measures how many leave. In a given period, retention plus churn equals 100% of the starting customer base (ignoring new additions).
Gross Churn vs. Net Impact
Gross churn looks only at losses, while net impact considers whether revenue expansion from existing customers offsets those losses. A company may have customer churn but still grow revenue if remaining customers expand their usage or spend.
Analyzing Churn Drivers
More advanced churn analysis looks beyond the headline percentage to understand why customers leave. This includes analyzing churn by customer segment, company size, industry, product usage, onboarding quality, and support interactions. Identifying patterns helps companies address root causes rather than symptoms.
Churn in Subscription and SaaS Businesses
In SaaS and subscription models, churn is especially critical because revenue depends on long-term customer relationships. Even small increases in churn can dramatically reduce revenue over time, since each lost customer represents lost future recurring revenue.
Churn and Cash Flow Sensitivity
Customers may churn not only because of product dissatisfaction, but also due to budget constraints or cash flow pressure. In these cases, offering more flexible payment options can help customers stay rather than cancel, especially around renewal periods.
Churn as a Growth Constraint
High churn creates a “leaky bucket” problem: new customers flow in, but existing customers flow out at the same time. If churn is too high, growth stalls regardless of how strong acquisition efforts are.
Summary
Customer churn measures how quickly customers leave a business. It is one of the most critical indicators of product value, customer satisfaction, and long-term business health. Reducing churn increases customer lifetime, improves revenue predictability, and makes growth more sustainable.
