Churned ARR: How to Track It?

Churned ARR is the revenue lost from existing customers in one year.

What is "Churned ARR"?

Churned ARR is revenue lost from cancellations and contractions in a given year.

You can calculate Churned ARR in two ways.

1. Churned ARR = Revenue lost due to cancellations + Revenue lost due to downgrades
2. Churned ARR = Sum of Churned MRR

Measuring Churned ARR helps businesses understand their growth ceiling and revenue retention rate.

People can downgrade the number of seats they use, product lines they are enrolled in, usage if the billing is metered

How To Track Churned ARR ?

There are a few different ways to track Churned ARR. Pick a method based on your tolerance for accuracy and time required.

1. Existing Billing Dashboard
2. Churn Analytics Software like Churnkey's Churn Metrics
3. Subscription Analytics Software

1. Existing Billing Dashboard

Stripe has a churn dashboard which is primarily focused on MRR churn. Other billing providers might also have the same.

We can see that the sum of contractions and churn is 900k in this screenshot.

On the left, we see subscriber churn rate which is not revenue churn rate. Don't use this.

To calculate revenue churn rate, you should look for the 'Gross MRR Churn'. This excludes any revenue gained due to upsells and focuses on Churned MRR alone.

Next, use a calculator to convert the monthly churn rate to an annual churn rate to get an estimate.

As you can see, a gross monthly churn rate of 10.4% results in an annual churn rate of 73.2%. This means the business loses 73.2% of all newly acquired revenue within a year.

The business might be able to make up some of the revenue by upselling retained customers but this Churned ARR excludes that number.

At that rate, the business might find it difficult to grow, let alone maintain it's ARR.

Profitability becomes trickier and investors start to doubt the sustainability of a business.

Using Stripe has it's own caveats.

1. You can't really action on the data. Yes, churn is an issue but where should you focus on? Is involuntary churn a big deal or is voluntary churn? Is revenue churn an issue or logo churn? There are a lot of nuances when it comes to solving churn.
2. Stripe makes certain assumptions when calculating churn rates. For newer businesses, it assumes a certain churn rate which might be different than actuals.
3. Cannot segment users by plan type, or by any other criteria.

You can use this method when you want a quick estimate and are ok to sacrifice quality of data.

2. Churn Analytics Software (Recommended)

A churn analytics software sits between a full-blown analytics suite and a lightweight method. It's the best of both worlds – fast to integrate and you get incredible insights to actually drive impact.

Unlike full-blown analytics software, it's also free to use regardless of the size of the business.

When you want to calculate Churned ARR, you're trying to calculate how much revenue you lose a year due to churn. But you shouldn't stop there. You should go deeper.

1. What % of your churn comes from involuntary churn?
2. How do your cake charts and retention cohorts trend over time?
3. What % of churn is logo churn and revenue churn?
4. How does it vary by different segments?

Answering each of these questions helps you decide how to solve churn.

Churnkey is a retention automation software with a free churn analytics product.

It's free to use and requires no engineering help.

To track Churned ARR using Churnkey, follow these steps:

1. Connect Churn Metrics to Stripe
2. Wait for 30-60 minutes while we ingest historical data
3. View and interpret your churn metrics like involuntary vs voluntary churn
4. Decide where to focus

You can reach out to Churnkey's team for a quick analysis on your churn metrics. Getting your churn data is one thing – being able to interpret it is another thing!

Churnkey is also SOC-2 compliant and a verified partner in Stripe's ecosystem. This means, your data is secure.

Unlike all other platforms, with Churnkey, you can also take action to reduce churn.

Churnkey is designed to help you reduce churn:

• Create personalized cancel flows
• Launch failed payment recovery campaigns
• Run reactivation programs
• Do customer health modelling scoring
• AI to understand the specific trends in your data

We save companies like yours 20%-40% of subscription revenue that would otherwise be lost to churn.

3. Subscription Analytics Software

• Stripe isn't an analytics software – they help you earn money on the internet.
• Neither is Churnkey – we help you keep your existing customers.

There are software companies focused exclusively on subscription analytics like Chartmogul, Equals, Databox.

These companies help you monitor the health of your business across all metrics, and aren't just focused on churn and retention.

Equals is more of a lift to integrate and is a better fit for RevOps leaders who want 100% accuracy.

Chartmogul is relatively easier to integrate and is better for founders who want a great level of coverage.

All tools offer higher accuracy but they would still not have some of the churn-specific metrics that Churnkey would have.

So, you may end up using both of the platforms – Churnkey and a specific subscription analytics tool.

With Churnkey, you can track all your churn metrics for free in one dashboard.

Simply connect your payment provider (Stripe, Chargebee, Paddle) watch how your churn trends over time.

Why Churn Is The Silent Killer

Let’s take a look at an example comparing two competitors — Apple Corp and Banana Corp.

Even though Banana acquires twice as many customers as Apple does, Banana still loses due to a slightly lower retention rate.

A lower ARR churn rate is risky. A seemingly low 5% monthly churn rate leads to a churn rate of around 45% in a year. At that rate, businesses might find it difficult to grow, let alone maintain the ARR.

Profitability becomes trickier and investors start to doubt the sustainability of a business.

Every subscription business should have access to powerful retention insights. That’s why Churnkey offers Churn Metrics completely free.

FAQs

What is churn in ARR?

Churned in ARR refers to loss in annual recurring revenue due to contractions or cancellations. ARR is the most important metric for subscription businesses and revenue or customer churn put a cap on your growth ceiling.

What is the formula for annual revenue churn?

ARR Revenue Churn = Revenue Lost due to Cancellations + Revenue Lost due to Contractions.