What is churn?
Churn is the customers or recurring revenue lost in a period, usually shown as a percentage of the customers or revenue at the start of that period. Customer churn counts accounts that leave; revenue churn counts the recurring dollars lost, including downgrades. The two can tell different stories, so look at both. In services companies the closest equivalent is agreement non-renewal.
Why it matters to a revenue leader
Churn is the leak under every growth plan. A software company with 15 percent annual revenue churn must replace that much just to stand still, before any growth counts. Many churn decisions are made well before the renewal date, when service problems or a new decision-maker go unaddressed. For a revenue leader, churn is a lagging indicator; the earlier signs sit in usage, service history and relationship coverage.
How to calculate it
Customer churn rate = customers lost during the period divided by customers at the start of the period. Revenue churn rate = recurring revenue lost to cancellations and downgrades divided by recurring revenue at the start. A common mistake is including customers won during the period in the denominator.
Example
Fictitious numbersA software company starts the year with 500 customers and $10 million of ARR. During the year 50 customers leave, taking $500,000 of ARR, and others downgrade by $300,000. Customer churn is 10 percent and revenue churn is 8 percent.
"Which customers who left last year showed warning signs six months earlier, and who saw them?"
Sources
- Churn Rate (Corporate Finance Institute) checked 9 Oct 2026