Software Growth

Revenue churn

Revenue churn is the share of recurring revenue you lose in a period from cancellations and downgrades. Gross ignores expansion, net subtracts it.

Revenue churn measures dollars lost, not customers lost. It matters because a $9 plan and a $900 plan count as one customer each, and losing the second hurts a hundred times more.

Gross revenue churn

Gross revenue churn adds up churned MRR (full cancellations) and contraction MRR (downgrades) and divides by the MRR at the start of the period. It ignores everything good that happened in the same month.

Your product starts the month at $20,000 MRR. Customers who cancel take $500 with them, and others downgrade for a combined $300. Gross revenue churn is (500 + 300) / 20,000 = 4%.

Net revenue churn

Net revenue churn subtracts expansion MRR (upgrades, extra seats, add-ons) from the losses.

If the same month also brought $1,000 of expansion, net revenue churn is (500 + 300 - 1,000) / 20,000 = -1%. A negative result means existing customers grew your revenue despite the losses. That is negative churn. ChartMogul defines net negative churn as expansion and reactivation MRR exceeding churn and contraction MRR.

Which one to watch

  • Gross tells you how leaky the bucket is. It is the honest measure of whether customers are getting value, and it is the mirror image of gross revenue retention.
  • Net tells you what the base is doing to your growth. It mirrors net revenue retention.
  • Net can look healthy while gross is bad, if a few large accounts expand quickly and cover for many small cancellations. Track both.

Revenue churn vs customer churn

If revenue churn is lower than logo churn, your lost customers are the small ones, which is common and usually fine. If revenue churn is higher, you are losing your best accounts, and that needs attention first.

Cohen's Max MRR framing also works on revenue: new MRR divided by monthly revenue churn gives the plateau.

For small SaaS

With a handful of customers on custom prices, one cancellation can show up as 10% revenue churn. Use a quarterly view, and note any single account above 5% of MRR on its own line.

Sources

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