What is Churn?
Next to MRR, Churn is probably the most widely discussed subscription metric. Churn has no actual agreed-upon definition. In the end, you define churn in a way that works for your business and in a way that is defensible.
While there are many variations of churn, churn is always a measure of attrition or loss, and it can be lost customers, contracts, MRR, GAAP revenue, contract value, or bookings. Churn is most frequently expressed as a rate or ratio (churn rate of 12%), but churn can also be discussed as a whole number ("churned 10K of MRR" or "churned 2 customers").
When discussed as a rate, Churn is the inverse of your renewal rate
. An 80% renewal rate is the equivalent of a 20% churn rate.
Common Churn Metrics for Subscriptions Businesses
- Customer Churn - typically expressed as a count
- MRR Churn - typically expressed as a total of the MRR lost due to customer cancellations, but can be a ratio of MRR lost vs renewal. If a ratio, can include MRR contraction from existing customers along with MRR churned from lost customers
- Revenue Churn - typically, this is MRR Churn versus GAAP Revenue Churn
- Average MRR Churn - typically expressed as the average MRR of lost customers
Historically Popular Churn Metrics
- Bookings Churn - while MRR Churn is becoming more and more popular, historically Churn was calculated using bookings numbers.
- Revenue Churn - again, MRR Churn is the most popular way to report on revenue churn, but GAAP revenue churn has also been used extensively. The more variation in your subscription term lengths, the more difficult this number is to derive.
- Churn by count - churn is calculated by the number of customers or subscriptions that were cancelled vs the number that were renewed. this method works for monthly subscription businesses, early stage subscription businesses, and term subscription businesses with few products.