The two churn formulas and why they diverge
Customer churn and revenue churn are two separate formulas that frequently tell different stories about the same business.Customer churn rate
``` Customer Churn Rate = Customers Lost in Period / Customers at Start of Period ```
Customer churn counts accounts, not dollars. It is the right metric for evaluating product stickiness across your customer base and for sizing support and success teams. Customer churn does not account for the size of the accounts being lost.
Revenue churn rate (gross revenue churn)
``` Gross Revenue Churn = ARR Lost to Cancellations and Downgrades / ARR at Start of Period ```
Gross revenue churn measures the dollar impact of customer loss and contraction. It is the metric that directly affects ARR growth trajectory and is more closely tied to company valuation.
How the two metrics diverge
| Scenario | Customer churn | Revenue churn |
|---|---|---|
| Losing only small accounts | High | Low |
| Losing a few large enterprise accounts | Low | High |
| Evenly distributed cancellations | Parallel | Parallel |
Gross revenue churn vs. net revenue retention
Gross revenue churn and net revenue retention are related but measure opposite directions.
Gross revenue churn measures only losses. It ignores expansion revenue from upsells and cross-sells. A business can have significant gross churn but still grow ARR if expansion offsets it.
Net revenue retention captures both losses and expansion in a single number. A net revenue retention above 100% means expansion from existing customers exceeds churn and contraction. Run both metrics to get a complete read on revenue health inside the existing customer base.
Choosing the right measurement period
Churn rate is period-sensitive. Monthly churn compounds quickly, and a churn rate that looks small on a monthly basis becomes significant on an annualized basis. When reporting to boards or investors, annualized churn rates are standard. Be explicit about which period your churn figure covers.
For context on how churn connects to retention and lifetime value, see churn rate, gross revenue retention, and net revenue retention.
Frequently Asked Questions
What is the formula for customer churn rate?
Customer churn rate equals the number of customers who canceled during the period divided by the number of customers at the start of the period, expressed as a percentage. If you start a quarter with 200 customers and 10 cancel, your customer churn rate is 5% for the quarter.
What is the formula for revenue churn rate?
Revenue churn rate (also called gross revenue churn) equals the ARR lost from cancellations and downgrades during the period divided by the ARR at the start of the period. A business that starts a quarter with $10M ARR and loses $400K to churn and contraction has a 4% gross revenue churn rate.
Which churn formula should you report to a SaaS board?
Report both, because they diverge in meaningful ways. Customer churn tracks account retention and is useful for understanding product stickiness and support load. Revenue churn tracks dollar retention and is what drives valuation multiples. A company losing its smallest customers can show high customer churn with low revenue churn. Each number answers a question the other cannot.
Put these metrics to work
ORM builds custom revenue forecast models that turn concepts like churn rate formula into prescriptive action for your team.
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