Churn

Definition

The rate a recurring-revenue business loses customers or revenue.

Why It Matters

For anything sold on retention this is the number under the number, because a business adding customers while quietly losing them is worth far less than its top line suggests. Ask for it by cohort rather than in aggregate: a stable overall figure can hide new customers leaving fast while a loyal old base holds the average up, and you are buying the future, not the base. Losses concentrated right after a price change or a service issue tell you which one you are inheriting.

In numbers: A gym billing $120,000 of monthly memberships at 4% monthly churn loses $4,800 of that base every month, and must sell $57,600 of new memberships a year just to stand still. At 2% churn the same gym grows on half the sales effort, which is why the churn rate moves the multiple more than the revenue does.