What is Customer Churn?

Simply put, churn is existing business lost. You can measure churn based on customer count or revenue.

Customer churn is based on customer count and is sometimes called logo churn. It is measured by dividing lost customers by the prior period's total. Here is a simple example:

Simple Client Churn: Lost Customers / Prior Period's Customer Base

You can also drill deeper by measuring lost customers based on cohorts.

Cohort Churn: Customers in Cohort No Longer Transacting / Selected Customer Cohort

You can track how long you retain customers and see patterns that reveal why customers stop working with you by putting customers into cohorts.

Dollar Churn

There are two different dollar churn methods, and each has its place for use.

Gross Dollar Churn: MRR Lost / Previously Recognized MRR

Net Dollar Churn: (MRR Lost - Upsell MRR) / Previously Recognized MRR

Negative churn refers to a company with more upsells than MRR lost, demonstrated by a negative number using the formula above.

Monitoring churn is an integral part of a subscription business and can offer extraordinary insights into target markets. Of course, no one expects to have zero churn, but investors expect good churn based on the target market.

There are many ways to look at churn that make sense for different times and businesses.