Revenue churn is the amount of revenue lost over a set period of time from customers cancelling service or downgrading their plan. It’s an especially important metric for businesses with recurring revenue models, such as subscriptions or services, as it speaks directly to the current financial health of the company. Revenue churn can be attributed to customer dissatisfaction, better offers from competitors, or changing customer needs. Tracking this metric helps companies monitor their revenue stability and can inform strategies for improving customer retention.

Below, we’ll explain how revenue churn is calculated, what it can tell you about your business, and how to predict and reduce revenue churn.

What’s in this article?

• How is revenue churn calculated?
  
• What revenue churn can tell you about your business
  
• How to predict revenue churn
  
• How to reduce revenue churn
  
• How Stripe can help reduce churn
  

How is revenue churn calculated?

Revenue churn, also known as monthly recurring revenue (MRR) churn, measures the percentage of recurring revenue lost due to customer cancellations or downgrades within a specific time period. Revenue churn is typically calculated monthly, but it can be adjusted for different lengths of time.

There are several different formulas to calculate revenue churn. Each calculation provides a different insight into how revenue loss is affecting your business. Businesses should track several of these metrics for a more complete picture of their revenue. Here are some commonly used revenue churn formulas.

Gross revenue churn

This calculation focuses only on lost revenue, including customers who downgrade to a cheaper plan – not just those who leave entirely. It doesn’t consider any revenue gained from existing customers through upgrades or expansion.

• Formula: (Churned MRR ÷ MRR at the end of the previous month) x 100 = Gross Revenue Churn
  
• Example: If a company had £100,000 MRR at the end of January and lost £5,000 in February due to cancellations and downgrades, its gross revenue churn for February would be 5%.
  

Net revenue churn

This calculation takes into account both lost revenue and revenue gained from upsells or cross-sells to existing customers. A negative net revenue churn rate means the company is growing its revenue from existing customers faster than it is losing that revenue, which is a positive indicator.

• Formula: ([Churned MRR - Expansion MRR] ÷ MRR at the end of the previous month) x 100 = Net Revenue Churn
  
• Example: Using the same figures as above, if the company also gained £2,000 in expansion MRR in February, its net revenue churn would be 3%.
  

What revenue churn can tell you about your business

Assessing revenue churn helps businesses – especially those with subscription models – analyse their financial health and growth trajectory. Revenue churn provides insights into the following operational aspects:

• Financial health: High churn rates can erode revenue and profitability, making it difficult for businesses to maintain financial health and predict future income. Conversely, low churn rates indicate revenue is stable.
  
• Customer satisfaction: Churn rates can serve as a barometer for customer satisfaction and product-market fit. High churn might indicate customer dissatisfaction with the product or service, pricing issues, or stronger offerings from competitors.
  
• Resource allocation: Revenue churn helps companies decide where to allocate resources. If churn rates are high, investing in customer service, product improvement, or customer retention programs might take priority over investing in acquisition.
  
• Valuation: Businesses with lower revenue churn rates are often valued higher than those with higher churn rates. Predictable, stable revenue streams reduce investment risk, and this stability can lead to better funding opportunities and market standing.
  
• Internal operations: Churn can provide insights into which products or services are performing well and which aren’t, which can then guide product development and marketing strategies.
  

How to predict revenue churn

Here are some ways to find warning signs of churn so you can intervene before it happens.

Analyse churn data

• Study how customers used your product before leaving to understand the warning signs. Did they stop logging in, use fewer features, or downgrade their plan?
  
• Look for patterns of who’s leaving to target future interventions. Is it newer customers, those on a specific plan, or those from a particular industry?
  
• Talk to churned customers to understand their reasons for leaving. This can uncover issues your data doesn’t capture.
  
• Feed historical customer data into models to identify patterns that can help predict churn before it happens. Regularly update your model with new data to keep it accurate.
  

Monitor customer behaviour

• Track customer interactions and take note of customer dissatisfaction, including signs such as complaints increasing or the expression of issues in support tickets becoming more negative.
  
• Track behavioural metrics that correlate with churn, such as declining use of the product.
  
• Conduct regular customer surveys to gauge satisfaction and identify pain points before they escalate.
  

How to reduce revenue churn

Keeping revenue churn low is important for a business’s long-term financial health. Here are some effective strategies to improve customer retention and keep revenue churn in check.

• Customer onboarding: A comprehensive and engaging onboarding process can help customers understand how to effectively use your product from the beginning, encouraging greater satisfaction and perceived value, which can reduce churn. Customised onboarding based on customer segment or intended usage can make this process even more impactful.
  
• Customer support: Providing responsive, helpful, and proactive customer support can solve issues before they escalate into reasons for cancellation. Implementing multichannel support – including live chat, phone, and email options – ensures that help is readily available in whichever format the customer prefers.
  
• Customer feedback: Regularly collecting feedback using surveys, interviews, and social media can bring new understanding of what customers like and dislike. Addressing common complaints and making improvements based on customer feedback can improve the product, and in turn, can reduce churn.
  
• Personalised communication: Customising communication and marketing offers based on individual customer data (such as usage patterns and purchase history) can increase engagement and loyalty. Personalisation makes customers feel valued and understood, making them more likely to stay.
  
• Usage and engagement metrics: Keeping track of how customers interact with your product helps identify those at risk of churning. Use low engagement rates to proactively reengage these customers – for example, you could offer them training or make them aware of useful features.
  
• Customer success programme: Having a customer success team dedicated to helping customers achieve their goals can help identify and address any gaps before they lead to dissatisfaction.
  
• Flexible pricing plans: Sometimes, customers churn because they feel they aren’t getting enough value from their current pricing tier, or they feel the product or service is too expensive for their needs. Offering more flexible pricing options or temporary downgrades can retain customers who might otherwise leave.
  
• Customer community: Creating a sense of community can boost customer loyalty. This might involve user groups, forums, or events that bring users together to make your product a part of their social or professional networks.
  
• Intervention methods: Tracking the success of your efforts and refining your strategies to combat churn helps you stay up-to-date with current customer concerns and operational issues.
  

How Stripe can help reduce churn

Stripe has a comprehensive suite of tools and features that can help businesses reduce both voluntary and involuntary churn. These tools can help mitigate cancellations over payment failures and billing issues, create an easier payment experience with self-service options, analyse customer behaviour for churn predictors, and offer more personalised product offerings and customer outreach.

Involuntary churn

Here’s how Stripe can help reduce churn caused by payment issues.

• Smart Retries: Stripe uses machine learning to optimise retry schedules for failed payments, increasing the likelihood of successful transactions and helping prevent cancellations from payment issues.
  
• Automated dunning: Stripe sends automated email reminders for customers with failed payments, gently nudging them to update their payment information and reducing churn caused by expired cards or billing issues.
  
• Account updater: Stripe automatically updates with new card information, preventing cancellations due to outdated payment details.
  
• Flexible payment methods: Stripe supports multiple payment methods, reducing the chances of customers churning because their preferred payment option isn’t available.
  

Voluntary churn

Here’s how Stripe can help reduce churn caused by customer dissatisfaction.

• Subscription management: Stripe Billing simplifies subscription management and allows businesses to offer flexible pricing models, trials, and discounts without added administrative work. This makes it easier for customers to find a plan that works for them and reduces the likelihood of cancellations.
  
• Customer portal: Stripe has a self-service portal where customers can easily manage their subscriptions, update billing information, and view payment history, offering customers transparency and more control.
  
• Data and analytics: Stripe helps businesses identify customers at risk of churning with detailed reporting and analytics on customer behaviour, payment trends, and churn patterns. This allows businesses to intervene before churn occurs.
  
• Integrations: Stripe integrates with several customer relationship management (CRM), marketing, and customer support tools – allowing businesses to access more comprehensive customer data that can help them improve their offerings and boost customer satisfaction before they churn.