Churn

A subscription business with 5% monthly churn loses nearly half its customers a year. Growth has to outrun that before the business grows at all, which is why churn quietly decides whether a subscription product ever becomes valuable.

The inverse of churn is retention, and it is the number investors look at first. A product with 2% monthly churn and modest growth is worth far more than one with 10% churn and impressive sign-up numbers.

Churn sets a ceiling that new customers cannot climb past. At a steady rate of sign-ups, a subscription business plateaus at new customers divided by churn rate: fifty new customers a month at 5% monthly churn stops growing at a thousand customers, permanently. The same fifty at 2% plateaus at two and a half thousand. Halving churn is worth more than doubling marketing, and costs less.

Two versions of the number are worth separating. Logo churn counts customers leaving; revenue churn counts the money going with them. A business that loses small accounts while existing large ones expand can have shrinking customer numbers and growing revenue. And most cancellations are decided in the first ninety days, which makes onboarding, not features, the usual place to fix it.