What Is Churn Rate? Formula, Types, and How to Find the Cause

Short answer: churn rate is the customers lost during a period divided by the customers you had at the start of it. Revenue churn does the same with recurring revenue. The number tells you how much you are losing. It does not tell you why, and for that you need to look at what churned customers did, and did not do, in the weeks before they left.

Table of Contents

1. The Formulas
2. Customer Churn and Revenue Churn
3. Common Calculation Errors
4. Voluntary and Involuntary Churn
5. Finding the Cause
6. Key Takeaways

The Formulas

Customer churn rate = customers lost in the period ÷ customers at the start of the period × 100

500 customers on the first of the month, 20 cancel: 4% monthly churn.

Gross revenue churn = recurring revenue lost to cancellations and downgrades ÷ recurring revenue at the start

Net revenue churn subtracts expansion revenue from existing customers. It can be negative, when upgrades outweigh losses.

Customer Churn and Revenue Churn

They can tell different stories.

Report both. A business losing its smallest customers has a different problem from one losing its largest.

Common Calculation Errors

• Comparing monthly with annual. 4% a month is not 48% a year. It compounds: about 39% of customers lost over twelve months (1 − 0.96¹²).
• Including new customers in the denominator. Customers who joined mid-period inflate the base and flatter the rate.
• Blending cohorts. New customers usually churn much faster than old ones. A blended rate moves when the mix of new and old changes, even if nothing else does (mix effects). Use cohorts.
• Mixing plan lengths. Annual customers can only churn at renewal.
• Counting paused or failed-payment accounts inconsistently.

Write the definition down and keep it fixed.

Voluntary and Involuntary Churn

Involuntary churn is often a meaningful share and is the cheapest to reduce. Watch sessions on your billing page: if updating a card is hard, customers who meant to stay will lapse.

Finding the Cause

Exit surveys help, and are limited. Many people skip them or choose the first option (feedback and behavior). Behavior fills the gap.

1. Compare churned with retained customers. Which actions did retained customers take in their first weeks that churned ones did not? That difference points to your activation moment (finding it).
2. Look at the weeks before cancellation. Falling visit frequency, a feature no longer used, a run of errors.
3. Watch their last sessions. Identify users so you can find them:

deepsync("identify", "user_123", { plan: "pro" });

Then filter sessions by that user (identifying users).

1. Watch the cancellation flow itself (cancellation analysis).
2. Check early life. Customers who never reached value in the first week were lost then, not at cancellation (time to value).

Note that session retention limits how far back you can look: 30 days on DeepSync's Free plan, 90 on Pro, 180 on Business. Review churned accounts soon after they leave.

Key Takeaways

• Churn is customers lost divided by customers at the start.
• Report customer and revenue churn, by cohort.
• Monthly churn compounds; do not multiply by twelve.
• The cause is found in behavior before cancellation.

Conclusion

The churn rate is the bill. The reasons are in the sessions of the people who left, usually much earlier than the day they cancelled.

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