What is churn rate?
The share of customers or revenue lost over a period. It follows the starting book, not the new families who joined.
Definition
Churn rate is the share of customers or repeating sales lost from the group you already had. On the books, this is a metric, not a ledger account.
A pet daycare uses it to ask how much of last month's roster walked away. The answer can be a headcount or a dollar figure, and those two answers can differ.
The Income Statement still shows all earned revenue, including brand-new families. Churn watches only what left the starting book.
This number is a loss ratio. It is not a count of new sign-ups.
Where it shows up
Balance Sheet: Related to the recurring book that shrinks when customers leave.
P&L: Related to revenue lost when customers leave or shrink.
See also: Net Revenue Retention · Monthly Recurring Revenue · Customer Lifetime Value
When you look at your P&L, you will not see a line titled churn rate. You will see boarding income from every family, old and new.
When the rate is high, a large share of the starting roster left or shrank. When it is low, most of last period's families are still paying.
The Balance Sheet does not hold this metric. Prepaid unused boarding days sit in deferred revenue until they are earned, and churn is only the leaving story.
On the Statement of Cash Flows, collecting a new family's monthly plan is an operating inflow. That new family does not lower this ratio, because they were not in the starting book.
Some teams put churn on a Key Metrics Dashboard beside monthly recurring revenue. That pairing is a management view, not an account in the books.
How it works
Freeze the customers, or the repeating dollars, who were active at the start of the period. That starting set is the denominator.
Count who left, or the dues those leavers took with them. If you are measuring dollars, also count dues cut when a family stays but buys less.
Divide the lost amount by the starting amount. The result is the churn rate.
Logo churn uses a headcount. Five families out of fifty is 10 percent, even if those five paid very different fees.
Revenue churn uses the dollars. If the five leavers were the biggest accounts, dollar churn is higher than logo churn.
A family that drops from five-day boarding to two-day boarding is not logo churn. That cut still raises revenue churn, because repeating sales shrank.
New families who joined after the start are excluded from the loss. They are new-logo bookings, not a repair to this ratio.
Gross revenue and earned sales on the P&L can still rise while this rate is ugly. New families lift the month without putting the leavers back.
Stay with the starting book when you read the rate. The sales log explains who is new, and this metric explains what left.
Keep a family-level file that supports the math. Anyone should be able to see who cancelled, who shrank, and what they paid at the start.
Do not mix a month of headcount with a year of dollars. Pick one basis and keep it for the whole ratio.
Example
A pet daycare starts the month with 50 families paying $200. Starting monthly recurring revenue from that group is $10,000.
Five families cancel, which is $1,000 lost. Logo churn is 5 divided by 50, or 10 percent.
Two other families drop from five-day care at $200 to two-day care at $80, which is $240 lost. Those two families still count as customers.
Revenue churn is $1,000 plus $240, divided by $10,000, or 12.4 percent. The headcount rate and the dollar rate no longer match.
If the daycare also signed 12 brand-new families, those sign-ups raise monthly recurring revenue. They do not lower the 10 percent or the 12.4 percent.
Common mix-ups
Churn rate is not the same as net adds. New families can outrun the leavers on the roster and still leave this loss ratio unchanged.
Churn rate is not gross revenue retention. Gross revenue retention is the share that remained from the starting book, and this rate is the share that left or shrank.
Churn rate is not a ledger account. You will not find it in the chart of accounts next to boarding income.
Related terms
- Net Revenue Retention: Revenue kept from existing customers including upgrades, after churn and downgrades.
- Gross Revenue Retention: Revenue kept from existing customers before any expansion is counted.
- Monthly Recurring Revenue: Normalized subscription revenue for a single month.
- Customer Lifetime Value: The total margin a customer is expected to produce before leaving.
- Recurring Revenue: Revenue that repeats on a subscription or contract schedule.
- Customer Acquisition Cost: The average sales and marketing spend needed to win one customer.
- Annual Recurring Revenue: Monthly recurring revenue expressed on a yearly basis.
- Revenue: The total value of goods and services the business earned in a period.