Churn Rate

What is churn rate?#

Churn rate is the proportion of a starting base — customers or recurring revenue — that is gone at the end of a defined period.

logo churn          = customers lost from starting cohort / customers at start
gross revenue churn = (churned recurring revenue + contraction) / starting recurring revenue

The two move independently. A company can lose many small accounts with modest revenue impact, or one anchor account with severe revenue impact. Reporting only one of them is a choice about which story to tell.

Subscription businesses generally track four related figures:

Before any of these mean anything, you have to define the churn event: contract termination date, effective service-end date, non-renewal after a grace period, or recurring revenue reaching zero. Pauses, delinquency, mergers, product migrations, and partial downgrades each need a written rule. A cancellation notice is not the same event as lost recurring revenue, and the gap between them is often a full quarter.

Why does churn matter to founders?#

Churn compounds, and it compounds first. Recurring revenue must replace losses before new acquisition produces net growth. At 3% monthly revenue churn, roughly 31% of the starting base has to be rebuilt each year just to stand still — before the growth plan starts.

It diagnoses fit by tenure, not in aggregate. Churn concentrated in the first 90 days points at targeting, onboarding, or an over-promised sale. Churn concentrated at renewal points at unrealized value, budget pressure, or a competitor. The operating response is completely different, so the blended number is close to useless as a diagnostic.

It changes acquisition economics more than anything else you control. The same CAC buys wildly different lifetime value under different survival curves, and because LTV models divide by churn, the error is non-linear: an error at low churn rates hurts far more than the same absolute error at high rates.

It determines what investors will underwrite. Diligence separates growth-from-new-logos from growth-from-the-existing-base. Reporting logo churn, GRR, NRR, and customer concentration side by side makes the revenue engine auditable — and the absence of one of them is read as a deliberate omission.

How do you calculate churn rate?#

1. Freeze the starting cohort#

List the accounts and their recurring revenue at the start of the window and do not touch it. Customers acquired mid-period are not eligible to churn from that cohort. Keep the membership list reproducible so the number can be recalculated months later.

2. Classify every movement#

3. Compute both views#

logo retention          = surviving logos from starting cohort / starting logos
logo churn              = 1 − logo retention
gross revenue retention = (starting RR − churn − contraction) / starting RR
net revenue retention   = (starting RR − churn − contraction + expansion) / starting RR

4. Align the window before comparing anything#

Monthly, quarterly, and annual churn are not interchangeable. Converting a constant monthly rate m to an annual figure requires compounding survival, not multiplication:

annual retention = (1 − m)^12
annual churn     = 1 − (1 − m)^12

5. Segment, then look at concentration#

Break the loss down by contract size, product, acquisition channel, tenure, use case, and geography — and always show the denominator and the recurring revenue at risk alongside the percentage. Then check whether one or two accounts drive the result.

6. Keep leading indicators separate from churn itself#

Product usage, support volume, champion departure, payment failure, and outcome attainment can predict churn. They are not churn. Validate any health score against realized renewals before you let it into a board deck.

Related concepts#

• Net Revenue Retention and GRR — combine churn, contraction, and expansion on one frozen cohort.
• ARR and MRR — define the recurring-revenue base churn is measured against.
• Customer Lifetime Value — translate survival into discounted contribution.
• Gross Margin — the margin that converts retained revenue into recoverable value.
• Cohort Analysis — observe retention by tenure instead of assuming a constant hazard.
• Customer Success — connect outcomes and intervention to renewal.
• Product-Market Fit — use retention as evidence of repeated value.

Sources#

1. Rogers Communications Inc., Fourth Quarter 2025 Results, published 2026. Primary disclosure of monthly postpaid and prepaid churn, the April 2025 subscriber-base adjustment, and the exclusion of 3G-decommissioning customers from churn metrics.
2. Workiva Inc., FY2025 Form 10-K, for the year ended December 31, 2025. Gross retention rate of 97.2% and net retention rate of 112.8%, with the annualization methodology stated.
3. Workday, Inc., FY2026 Form 10-K, for the year ended January 31, 2026. Gross revenue retention definition on an ARR basis for a fixed customer set, excluding add-ons and expansion.
4. Similarweb Ltd., Fourth Quarter and Fiscal 2025 Results, February 17, 2026. Overall NRR of 98% versus 103% for customers with $100,000+ ARR, illustrating segmentation effects.

Source-use note: Company filings and results releases are primary statements by the issuer. They show how each company defines and reports its own retention metrics; they are not standardized and are not comparable without reading the definitions.

Note: This page is educational and does not constitute accounting, financial, or investment advice. Churn and retention are unaudited operating metrics that fall outside GAAP and IFRS, and companies exercise genuine discretion over cohort definition, denominators, exclusions, and restatement. Consult a qualified accountant or auditor before relying on these metrics in investor reporting or a financing document.