Churn Rate

The churn rate (attrition rate or cancellation rate) is the percentage of customers or recurring revenue lost over a given period — typically monthly or annually. It is one of the most critical health indicators for any recurring-revenue business, particularly SaaS companies, subscription platforms or service providers operating under multi-year contracts.

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Two forms are distinguished: volume churn (number of churned customers / total customers at start of period) and revenue churn (churned revenue / total recurring revenue at start of period). Revenue churn is more relevant in valuation as it reflects the actual economic impact — losing one large client represents a far higher revenue churn than losing several small ones.

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Churn is directly linked to NRR (Net Revenue Retention): NRR = 1 - Net revenue churn + expansion revenue. A 5% annual churn with 10% expansion revenue gives an NRR of 105% — indicating that the existing base grows despite losses. In SaaS company valuation, an NRR above 120% justifies significantly higher valuation multiples than the sector median.

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Example: a Swiss SaaS scale-up shows MRR of CHF 400,000 in January. By December, CHF 24,000 of MRR was lost (churned clients) but CHF 60,000 was gained (new clients + expansion). Gross revenue churn: 24,000 / 400,000 = 6.0% annualised. NRR: (400,000 + 60,000 - 24,000) / 400,000 = 109% — a strong retention and validated expansion potential.

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At Hectelion, we analyse churn by cohort in our due diligences of SaaS and recurring-revenue companies to assess the quality and durability of the client base.