Churn Rate

The share of customers or revenue lost over a period.

Example

38 of 100 customers leaving within a year is a 38% annual churn rate.

Important

High churn means growth must replace lost customers before it adds any, which makes each new customer less valuable.

Related terms

  • Cohort Retention — The share of customers from a given signup period who are still active or paying after a set time.
  • Annual Recurring Revenue (ARR) — The yearly value of subscription or contracted revenue that is expected to repeat.

Lessons that explain it

  • The customers you find yourself tell you more than the ones you are given — Customer calls are the most direct evidence of demand. They are most useful when they ask about past behaviour and include customers the company did not choose. (10 min)
  • The list price is a claim; the realised price is the evidence — Pricing diligence compares list prices with what customers actually pay, checks discounting patterns and looks for evidence that customers would accept higher prices. (10 min)
  • The most important line in an update is often the one that is missing — Founders naturally lead with good news. Reading an update well means comparing it with last period, noticing which figures disappeared and separating real warning signs from normal early-stage noise. (11 min)
  • SaaS lives on retention; marketplaces live on liquidity and take rate — Software businesses are judged on recurring revenue, expansion and margins. Marketplaces are judged on whether buyers and sellers reliably find each other, and how much of each transaction the platform keeps. (12 min)
  • Consumer businesses live or die on acquisition cost and repeat purchase - and some questions apply everywhere — Consumer companies depend on the relationship between customer lifetime value and acquisition cost, brand and channel. Across all sectors, unit economics, retention, capital needs and time to revenue are the questions that travel. (12 min)
  • Retention and unit economics say more than the growth chart — Growth can be bought. Retention shows whether customers get lasting value, and unit economics show whether each customer is worth what it costs to win. (13 min)

All 578 terms in the Investing glossary