Why it matters
Customer churn treats every customer as equal, but customers do not pay equal amounts. Losing one large account hurts more than losing five small ones, and revenue churn is the measure that shows it.
The net version answers a different question: is the revenue base shrinking or growing on its own, with no new customers at all? When the answer is growing, the net figure is negative, and that is the position every subscription business wants to reach.
The formula
Gross revenue churn adds the monthly recurring revenue lost to cancellations and the revenue lost to downgrades, then divides by the recurring revenue at the start of the period. Net revenue churn subtracts expansion revenue from the same customers before dividing. Revenue from new customers is excluded from both.
Gross revenue churn = (cancelled MRR + downgrade MRR) / MRR at start
Net revenue churn = (cancelled MRR + downgrade MRR - expansion MRR) / MRR at startA worked example
A business starts the month with $50,000 of MRR. These numbers are made up for illustration.
| Example numbers | Value |
|---|---|
| MRR at start of month | $50,000 |
| Cancelled MRR | $1,500 |
| Downgrade MRR | $500 |
| Expansion MRR | $2,500 |
| Gross revenue churn | 4.0% |
| Net revenue churn | -1.0% |
| MRR from the same customers at end of month | $50,500 |
Losing $2,000 out of $50,000 is a gross revenue churn of 4.0%. Expansion of $2,500 more than covers it, so net revenue churn is -1.0%. A negative number means the same customers pay more at the end than at the start.
How to improve it
Reduce the revenue that leaves and grow the revenue that stays, and watch both lines separately.
- Find where the lost dollars sit. If a few large accounts account for most of it, assign someone to each of them.
- Reduce downgrades with usage reviews, so a customer who is under using a plan hears from you before the renewal does.
- Grow expansion with pricing that scales with usage, seats or volume, which is the only way net churn goes negative.
- Report the gross and net figures side by side, so a strong expansion quarter does not hide a rising cancellation rate.
Common mistakes
- Quoting only net revenue churn. Strong expansion can mask a cancellation problem that will show up once expansion slows.
- Counting revenue from new customers as expansion, which pushes the net figure down artificially.
- Dividing by ending MRR instead of starting MRR. The base for the rate is the revenue you began the period with.
- Leaving downgrades out of the loss. A customer who halves their plan has churned half their revenue.
- Treating a negative net figure as a reason to stop working on cancellations. It describes the average, not each customer.
Calculate it and read next
Work it out with your own figures in the churn rate calculator. Then read about Net revenue retention, Expansion MRR and Customer churn rate.
- Net revenue retention: the same movements expressed as what remains rather than what leaves.
- Expansion MRR: the revenue that offsets the losses.
- Customer churn rate: the same loss counted in customers.
Frequently asked questions
Can revenue churn be negative?
Net revenue churn dips under zero once upgrades from existing customers outweigh what cancellations and downgrades took away. Gross revenue churn cannot be negative because it ignores expansion.
How do gross and net revenue churn differ?
Gross counts only what was lost. Net also subtracts what the same customers added. Gross tells you how leaky the product is, and net tells you how the base changed overall.
How does revenue churn relate to net revenue retention?
Net revenue retention is one minus net revenue churn, and gross revenue retention is one minus gross revenue churn. They carry the same information in opposite directions.
Does a price increase affect revenue churn?
A price increase counts as expansion for existing customers and can push customers to cancel or downgrade. Track it separately so you can see which effect won.