Revenue churn versus member churn

When a membership owner talks about churn, they usually mean the share of members who cancelled. That is member churn, and it matters. But it is only half the story. If you have more than one price level, or members who downgrade, or a mix of full-price and discounted members, the money you lose each month can be quite different from the headcount you lose. That second measure is revenue churn.

The two figures regularly disagree, and the disagreement is where the useful information lies. One month can look calm on members and painful on revenue; another can look alarming on members and barely touch your income. Knowing both keeps you from fixing the wrong problem.

Two questions, two formulas

Member churn asks how many people left. Revenue churn asks how much recurring revenue left.

Member churn = members who cancelled this month ÷ paying members at the start of the month

Revenue churn = recurring revenue lost to cancellations and downgrades this month ÷ recurring revenue at the start of the month

Notice that downgrades appear only in revenue churn. A member who moves from your top level to your bottom level is still a member, so member churn ignores them, but your income has fallen. Use monthly amounts throughout, so an annual member paying $240 a year counts as $20 a month.

A worked example: two very different months

Take a hypothetical fly-fishing membership run by a guide named Joaquin. The figures are invented to show the method. He has two levels: Angler at $15 a month with 500 members, and Guide Circle at $45 a month with 100 members. At the start of each month he has 600 members and $12,000 in recurring revenue ($7,500 + $4,500).

Month A

• 25 Angler members cancel: $375 lost.
• 5 Guide Circle members cancel: $225 lost.
• 4 Guide Circle members downgrade to Angler: $30 lost each, $120 in total.

Member churn is 30 ÷ 600, or 5%. Revenue churn is ($375 + $225 + $120) ÷ $12,000 = $720 ÷ $12,000, or 6%.

Month B

• 40 Angler members cancel: $600 lost.
• No Guide Circle members cancel or downgrade.

Member churn is 40 ÷ 600, about 6.7%. Revenue churn is $600 ÷ $12,000, or 5%.

On headcount, Month B looks worse. On money, Month A was worse, because Joaquin lost members from his higher level and some of those who stayed moved down. The two months call for different responses.

Why the two figures drift apart

• Which level the leavers were on. Losing one top-level member can cost as much as losing several on the entry level.
• Downgrades. They count as revenue lost with no change in headcount.
• Discounted members. Members on heavy promotional rates leave in larger numbers but take little revenue with them. If you run promotions, it is worth watching how members who joined through a discount behave separately.
• Your revenue per member. If your average revenue per member is rising because more people choose higher levels, each departure costs more on average, and revenue churn will tend to run above member churn.

Gross and net revenue churn

The revenue churn above is gross: it counts only losses. Net revenue churn subtracts the extra revenue from existing members who upgraded or added extras in the same month. If 6 of Joaquin's Angler members had upgraded to Guide Circle in Month A, adding $30 each, net revenue churn would be ($720 minus $180) ÷ $12,000 = $540 ÷ $12,000, or 4.5%. If upgrades ever outweigh losses, net revenue churn turns negative, meaning existing members grew your income on their own. For the fuller, longer-term view of this, see revenue retention and expansion revenue.

Report gross revenue churn alongside net, so healthy upgrades never hide a leak.

Which figure answers which question

Watch member churn for the experience

Member churn tells you how many people decided the membership was not for them. It reflects the experience, the community, word of mouth and how many people you need to replace just to stand still. A rising member churn with steady revenue churn usually points at the entry level: new or low-paying members who never found their footing.

Watch revenue churn for the business

Revenue churn tells you how much income you need to replace. It drives forecasts, budgets and decisions about spending. A revenue churn persistently above member churn is a warning about your higher levels: your most valuable members are leaving or stepping down, which often means the premium level is not delivering what it promised.

Watch the gap for the story

Plot both figures on the same chart each month. When the lines move together, your members are leaving evenly across levels. When they separate, ask which levels the leavers and downgraders came from, and read their cancellation reasons by level.

Tracking both from next month

1. At the start of each month, record paying members and recurring revenue, both converted to monthly amounts.
2. During the month, log every cancellation, downgrade and upgrade with the amount it changed.
3. At month end, calculate member churn, gross revenue churn and net revenue churn.
4. Break cancellations and downgrades down by level.
5. Chart the figures side by side and note any month where they separate.
6. When revenue churn runs higher, review your top level; when member churn runs higher, review your entry experience.