What is Churn Rate?

Churn rate directly impacts growth and valuation. If a SaaS company acquires 100 new customers per month but churns 80, net growth is only 20. Reducing churn from 5% monthly to 3% monthly has a far greater impact on long-term revenue than most acquisition strategies. This is why investors scrutinize churn rates—a company with 2% monthly churn loses 22% of its customer base annually.

Churn analysis should distinguish between voluntary churn (customers actively canceling) and involuntary churn (failed payments, expired cards). It should also examine churn by cohort—if newer cohorts churn faster than older ones, the product might be attracting the wrong customers or quality is declining. Logo churn (number of customers lost) and revenue churn (revenue from lost customers) can tell different stories.

In case interviews, churn analysis is essential for subscription business cases. If a company has high churn, investigate root causes through customer surveys, usage data, and cohort analysis. Common solutions include improving onboarding, adding engagement features, implementing customer success programs, adjusting pricing, and building switching costs.