Churn
The rate at which customers cancel or stop paying for a product.
Definition
Churn measures the percentage of customers or revenue lost over a given period. Customer churn counts the number of customers who cancel; revenue churn measures the dollar value lost. A company with 5% monthly churn loses half its customer base in about a year. Low churn is essential for building a sustainable business.
Why it matters
High churn is a red flag that the product may not have strong product-market fit. Companies with high churn struggle to grow, which suppresses valuations and makes your equity less likely to pay off.
Example
A company starts the month with 1,000 customers and loses 30. That is 3% monthly churn, or roughly 31% annual churn. A best-in-class SaaS company targets under 5% annual churn.