What is churn, and how do I work out my churn rate?

Where the definition comes from

Churn has no single agreed sum. Andreessen Horowitz's list of startup metrics says there are varying definitions for how it is measured. The plainest wording comes from a company that bills subscriptions.

It is retention read from the other side. If 10% of the customers you started with left, 90% of them stayed.

Customer churn and revenue churn

Customer churn counts people. Revenue churn counts money. Stripe's guide to revenue churn defines it as the revenue lost over a set period from customers cancelling or downgrading their plan. A customer who moves to a cheaper plan has not left, so customer churn misses them and revenue churn does not.

The two can sit far apart. David Skok's example has 100 customers and $55,000 of monthly revenue: 50 small accounts paying $100 a month and 50 large ones paying $1,000. Ten leave, nine of them small. Customer churn is 10%. The revenue lost is $1,900, which he gives as 3.4% revenue churn.

Revenue churn has a gross and a net version. Net first takes off the extra revenue from customers who upgraded.

How to work it out, step by step

1. Pick a period: a month, a quarter or a year.
2. Count the paying customers you had on its first day.
3. Count the customers who stopped paying during it.
4. Divide the second number by the first and multiply by 100. The formula in words: customers lost in the period, divided by customers at the start of the period.
5. For revenue churn, do the same sum in money: the monthly revenue lost to cancellations and downgrades, divided by the monthly revenue at the start.

Andreessen Horowitz writes the sum investors use the same way: lost customers over the prior month's total.

Why two sums give two answers

Take the example again: 100 customers at the start and 10 lost. Now say 25 new customers joined during the month. Stripe's guide divides by the customers at the start, so 10 divided by 100 is 10%. Stripe's dashboard documentation divides the subscribers who churned in the past 30 days by the active subscribers 30 days ago plus the new subscribers in those 30 days, so 10 divided by 125 is 8%.

Neither is wrong. They disagree on who could have left: only the customers you began with, or the new ones too. Pick one sum, say which, and never set a figure from one beside a figure from the other.

The mistakes a new founder makes

• Reading a rate built on a handful of customers. With 8 customers, one cancellation is 12.5%. With 100 it is 1%. Say how many customers the figure rests on.
• Counting people who never paid. A free user who stops logging in is not a lost customer. Nor is a trial that ends without a payment, which belongs with your conversion rate. Stripe's documentation leaves free plans and trials out of its count of active subscribers.
• Multiplying a monthly rate by 12. Churn compounds. The same documentation shows a 10% monthly rate leaving 90% of a group after one month, 81% after two and 73% after three. After a year about 28% are left, where multiplying by 12 would say 120% had gone.
• Treating a failed card as a choice. Stripe's guide to revenue churn separates voluntary churn from involuntary churn, which is caused by payment problems. Check which it was before you decide people do not want the product.
• Answering churn with more signups. Skok calls growing while customers leave filling a leaky bucket, and says how to find the cause.

Where it matters

Churn decides whether a paid channel can pay for itself. Stripe's guide says a business can justify a high cost of winning customers when its churn rate is low, and that the cost is harder to justify when it is high. So work it out before you raise the budget on Google Ads or Meta Ads. It is also half of lifetime value, the figure a customer acquisition cost is set beside.

The cause can sit well before the cancellation. The same guide says some customers leave because they do not fully grasp the value of a product, which is onboarding and activation. Stripe's guide to revenue churn lists flexible pricing and temporary downgrades among the ways to keep customers who might otherwise leave, which is pricing.

How Sami uses it

Sami works from the numbers you give it and the records AskSami keeps. Once you sign up, a payment export you hand over becomes a dated record before Sami answers, and payments come from your own payment webhook. Nothing on that record is edited or deleted, so the figure you gave last month is still there to set beside this one.

If nothing on record shows who stopped paying, Sami says it has no data and does not invent a churn rate.