Churn rate measures how quickly a subscription business loses what it has. Logo churn, also called customer churn, counts the share of customers who cancel in a period. Revenue churn counts the share of recurring revenue lost to cancellations and, depending on the definition, downgrades. The two can tell very different stories, so most SaaS companies track both.
Formulas
Use the same period length every time, and do not mix monthly and annual churn without converting. Monthly churn does not convert to annual by multiplying by twelve, because each month's losses come from a smaller base.
Logo churn = customers lost in period ÷ customers at start of period
Gross revenue churn = (churned MRR + contraction MRR) ÷ MRR at start of periodLogo churn versus revenue churn
If a company loses many small customers but keeps its large ones, logo churn will be high while revenue churn stays low. The reverse happens when a single large account leaves. Logo churn is a better signal of product experience across the customer base. Revenue churn matters more to the financial model.
- High logo churn, low revenue churn: small accounts are struggling; check onboarding and fit at the low end.
- Low logo churn, high revenue churn: a few large accounts left or downgraded; check account management.
Voluntary and involuntary churn
Voluntary churn is a deliberate cancellation. Involuntary churn happens when a payment fails and is not recovered. Involuntary churn is often fixable with card updater services, retry logic and reminder emails, so separate it before drawing conclusions about the product.
Churn and acquisition
Acquisition choices affect churn. Traffic that brings in people outside the ideal customer profile can raise sign-ups while raising churn a few months later. Tracking churn by acquisition source, plan and first landing page helps tell the two effects apart.
Example
Two churn numbers, two conclusions
Hypothetical company Fernbright Analytics loses an illustrative 40 of 1,000 customers in a quarter, a 4% logo churn. Those customers were mostly on its smallest plan, so revenue churn for the quarter is much lower. The team concludes the product is fine for larger teams but that small accounts are not reaching value, and it reviews its entry-level onboarding.
Common mistakes
Multiplying monthly churn by twelve
This overstates annual churn. Use the compounding formula or measure annual churn directly.
Mixing churn definitions
Some teams include downgrades in revenue churn and some do not. State the definition next to the figure.
Questions
Usually not. Churn rate normally covers paying customers. Track inactive free users with a separate engagement or retention metric.
