Churn rate is the share of customers (customer churn) or recurring revenue (revenue churn) that a business loses during a set period, usually a month or a year.
Why it matters
Churn determines how fast a subscription business can grow, because every lost customer must be replaced before net growth begins. High churn also makes marketing spend less efficient and often points to onboarding, product or pricing problems.
Example
A company starts the month with 500 customers and 25 cancel. Customer churn is 25 divided by 500, which is 5 percent. At that rate, the average customer lifetime is roughly 1 divided by 0.05, or 20 months, which feeds directly into LTV calculations.
Common mistakes
- Mixing up customer churn and revenue churn; losing small accounts and large accounts hurts differently.
- Counting new sign-ups that left within days the same way as long-term customers.
- Looking only at the monthly average and missing that most cancellations happen in the first 30 days.
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