GuideThe numbers leadership asks about
Churn
Definition
The rate at which customers, or the revenue they carry, leave over a period. Customer churn and revenue churn part company whenever the leavers are larger or smaller than the average account, so first establish which one you are being shown.
How it’s calculated
Customers lost in the period divided by customers at the start of it; for revenue churn, the revenue those accounts carried divided by starting revenue. Lifetime follows directly: expected customer lifetime is one divided by annual churn, so at 40% churn a customer lasts two and a half years, and everything you build on lifetime value inherits that assumption. A monthly rate does not annualize by multiplying by twelve, because each month’s losses come out of a smaller base. Compound the survival instead: at 3% a month, a year retains 0.97 applied twelve times, roughly 69%, so annual churn is close to 31% where multiplication would have claimed 36.
What to watch for
The slide shows customer churn in a period when the departures were your largest accounts, and revenue churn, which nobody has put on a slide, is worse; ask for both. Customers who signed but never got running are excluded as not real customers, which removes a whole class of leaving from the figure and flatters onboarding in the same movement. An annual figure turns out to be a monthly figure times twelve, which overstates churn and quietly understates every lifetime calculation downstream of it.
The question you ask
“Is this customer churn or revenue churn, and who is counted in the base?”