Customer churn
Customer churn is the rate at which existing customers stop doing business with a company over a given period — cancelling a subscription, not renewing a contract, or simply not coming back. It’s usually expressed as a percentage of customers, or of revenue, lost per month or per year, and low churn generally signals durable revenue.
Churn answers a simple question: of the customers a business had a year ago, how many are still customers today? A business that constantly has to replace departing customers just to stay flat is working much harder — and carrying more risk — than one whose customer base is naturally stable.
Customer churn versus revenue churn
Customer churn counts how many customers left. Revenue churn measures the dollar impact of departures and downgrades, which can tell a different story — losing a handful of small customers might barely move revenue, while losing one large account could hit revenue hard even if the customer count barely changes.
Why buyers weigh it heavily
High churn forces ongoing spending on new customer acquisition just to maintain current revenue, which erodes real profitability even when the headline revenue number looks stable. Buyers typically ask for churn history over several years, broken down by customer size, before accepting a business’s revenue as durable.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryGetting a Business Valuation Before You List
- 02Treadstone LawLegal commentaryCustomer Concentration Risk: Why It Can Sink an Ontario Business Sale
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