Churn ARR
Growth
Industry:
SaaS
Short Definition
Churn ARR is the annual recurring revenue lost in the period from two places: (1) Logo Churn ARR — customers that fully cancel to $0, and (2) Contraction ARR — customers who stay but pay less (down-sells or reductions). Count changes on the effective date (when it goes live), not when notice is given.
Short Definition
Churn ARR is the annual recurring revenue lost in the period from two places: (1) Logo Churn ARR — customers that fully cancel to $0, and (2) Contraction ARR — customers who stay but pay less (down-sells or reductions). Count changes on the effective date (when it goes live), not when notice is given.
Short Definition
Churn ARR is the annual recurring revenue lost in the period from two places: (1) Logo Churn ARR — customers that fully cancel to $0, and (2) Contraction ARR — customers who stay but pay less (down-sells or reductions). Count changes on the effective date (when it goes live), not when notice is given.
Why it matters for Investors
Retention health: Shows the total ARR leaking from the base (full cancels + downgrades/reductions).
Planning & profitability: More churn → lower ARR and future cash flow; margins can get squeezed.
Net growth signal: It’s the negative side of the ARR bridge—compare to New Logo + Expansion to see if you’re net growing or shrinking.
Why it matters for Investors
Retention health: Shows the total ARR leaking from the base (full cancels + downgrades/reductions).
Planning & profitability: More churn → lower ARR and future cash flow; margins can get squeezed.
Net growth signal: It’s the negative side of the ARR bridge—compare to New Logo + Expansion to see if you’re net growing or shrinking.
Why it matters for Investors
Retention health: Shows the total ARR leaking from the base (full cancels + downgrades/reductions).
Planning & profitability: More churn → lower ARR and future cash flow; margins can get squeezed.
Net growth signal: It’s the negative side of the ARR bridge—compare to New Logo + Expansion to see if you’re net growing or shrinking.
Formula
Practical considerations:
What’s included: Logo Churn (full cancel to $0) + Contraction (customers stay but pay less: tier/module drop, fewer seats/units, lower minimums, price-only cuts).
When to count: Use the effective date the change starts (or ends). Anything signed for later remains in CARR until that date.
Mixed changes (split once): If the same amendment has both a feature drop and fewer seats/price cuts, split the amounts: feature drop → Down-sell (part of Contraction) • seats/minimum/price cut → Reduction (part of Contraction).
Reversals: If undone within the same period, net to $0. If undone in a later period, book as Expansion (or Reactivation/New Logo if the account had fully churned).
How to show it: Report Logo Churn and Contraction separately; Total Churn ARR = Logo Churn ARR + Contraction ARR.
Formula
Practical considerations:
What’s included: Logo Churn (full cancel to $0) + Contraction (customers stay but pay less: tier/module drop, fewer seats/units, lower minimums, price-only cuts).
When to count: Use the effective date the change starts (or ends). Anything signed for later remains in CARR until that date.
Mixed changes (split once): If the same amendment has both a feature drop and fewer seats/price cuts, split the amounts: feature drop → Down-sell (part of Contraction) • seats/minimum/price cut → Reduction (part of Contraction).
Reversals: If undone within the same period, net to $0. If undone in a later period, book as Expansion (or Reactivation/New Logo if the account had fully churned).
How to show it: Report Logo Churn and Contraction separately; Total Churn ARR = Logo Churn ARR + Contraction ARR.
Formula
Practical considerations:
What’s included: Logo Churn (full cancel to $0) + Contraction (customers stay but pay less: tier/module drop, fewer seats/units, lower minimums, price-only cuts).
When to count: Use the effective date the change starts (or ends). Anything signed for later remains in CARR until that date.
Mixed changes (split once): If the same amendment has both a feature drop and fewer seats/price cuts, split the amounts: feature drop → Down-sell (part of Contraction) • seats/minimum/price cut → Reduction (part of Contraction).
Reversals: If undone within the same period, net to $0. If undone in a later period, book as Expansion (or Reactivation/New Logo if the account had fully churned).
How to show it: Report Logo Churn and Contraction separately; Total Churn ARR = Logo Churn ARR + Contraction ARR.
Worked Example
Starting ARR (Feb 28): $1,200,000
Period: March (snapshot Mar 31)
Account | Event | Effective by Mar 31? | Account ARR @ Mar-31 ($) | Δ ARR in March ($) | Category | Notes |
|---|---|---|---|---|---|---|
A | New logo, annual $24,000, starts Mar 4 | Yes | $24,000 | +$24,000 | New Logo | Not Churn |
B | New logo, annual $36,000, starts Apr 1 | No | $0 | $0 | Booking / CARR | Signed, starts next month |
C | Upsell on existing (+$18,000) eff. Mar 15 (prior $50,000) | Yes | $68,000 ($50,000 → $68,000) | +$18,000 | Expansion | Not Churn |
D | Cancellation effective Mar 31 (prior $40,000) | Yes | $0 | −$40,000 | Logo Churn | Account to $0 |
E | Year-2 ramp $20,000 → $35,000 on Mar 1 | Yes | $35,000 | +$15,000 | Expansion (ramp) | Not Churn |
F | Downgrade: Enterprise $50,000 → Standard $42,000 (Mar 20) | Yes | $42,000 | −$8,000 | Contraction — Down-sell | Tier/plan downgrade |
G | Remove Analytics module ($6,000/yr) on Mar 25 (prior total $30,000) | Yes | $24,000 ($30,000 → $24,000) | −$6,000 | Contraction — Down-sell | Module removed; account still active |
Churn ARR (March): $54,000 = Contraction $14,000 (F + G) + Logo Churn $40,000 (D)
ARR Bridge (March):
New Logo ARR: +$24,000 (A)
Expansion ARR: +$33,000 (C + E)
Contraction ARR: −$14,000 (F + G)
Logo Churn ARR: −$40,000 (D)
Net New ARR: $24,000 + $33,000 − $14,000 − $40,000 = +$3,000
Ending ARR (Mar 31): $1,200,000 + $3,000 = $1,203,000
Notes:
Total Churn ARR is the sum of Logo Churn and Contraction that became effective in March.
A, C, E are not churn; B sits in CARR until April.
If a customer down-sells and later cancels in the same period, show both (the reduction first, then churn to $0).
Ignore one-offs (credits/refunds); ARR tracks recurring commitments only.
Worked Example
Starting ARR (Feb 28): $1,200,000
Period: March (snapshot Mar 31)
Account | Event | Effective by Mar 31? | Account ARR @ Mar-31 ($) | Δ ARR in March ($) | Category | Notes |
|---|---|---|---|---|---|---|
A | New logo, annual $24,000, starts Mar 4 | Yes | $24,000 | +$24,000 | New Logo | Not Churn |
B | New logo, annual $36,000, starts Apr 1 | No | $0 | $0 | Booking / CARR | Signed, starts next month |
C | Upsell on existing (+$18,000) eff. Mar 15 (prior $50,000) | Yes | $68,000 ($50,000 → $68,000) | +$18,000 | Expansion | Not Churn |
D | Cancellation effective Mar 31 (prior $40,000) | Yes | $0 | −$40,000 | Logo Churn | Account to $0 |
E | Year-2 ramp $20,000 → $35,000 on Mar 1 | Yes | $35,000 | +$15,000 | Expansion (ramp) | Not Churn |
F | Downgrade: Enterprise $50,000 → Standard $42,000 (Mar 20) | Yes | $42,000 | −$8,000 | Contraction — Down-sell | Tier/plan downgrade |
G | Remove Analytics module ($6,000/yr) on Mar 25 (prior total $30,000) | Yes | $24,000 ($30,000 → $24,000) | −$6,000 | Contraction — Down-sell | Module removed; account still active |
Churn ARR (March): $54,000 = Contraction $14,000 (F + G) + Logo Churn $40,000 (D)
ARR Bridge (March):
New Logo ARR: +$24,000 (A)
Expansion ARR: +$33,000 (C + E)
Contraction ARR: −$14,000 (F + G)
Logo Churn ARR: −$40,000 (D)
Net New ARR: $24,000 + $33,000 − $14,000 − $40,000 = +$3,000
Ending ARR (Mar 31): $1,200,000 + $3,000 = $1,203,000
Notes:
Total Churn ARR is the sum of Logo Churn and Contraction that became effective in March.
A, C, E are not churn; B sits in CARR until April.
If a customer down-sells and later cancels in the same period, show both (the reduction first, then churn to $0).
Ignore one-offs (credits/refunds); ARR tracks recurring commitments only.
Worked Example
Starting ARR (Feb 28): $1,200,000
Period: March (snapshot Mar 31)
Account | Event | Effective by Mar 31? | Account ARR @ Mar-31 ($) | Δ ARR in March ($) | Category | Notes |
|---|---|---|---|---|---|---|
A | New logo, annual $24,000, starts Mar 4 | Yes | $24,000 | +$24,000 | New Logo | Not Churn |
B | New logo, annual $36,000, starts Apr 1 | No | $0 | $0 | Booking / CARR | Signed, starts next month |
C | Upsell on existing (+$18,000) eff. Mar 15 (prior $50,000) | Yes | $68,000 ($50,000 → $68,000) | +$18,000 | Expansion | Not Churn |
D | Cancellation effective Mar 31 (prior $40,000) | Yes | $0 | −$40,000 | Logo Churn | Account to $0 |
E | Year-2 ramp $20,000 → $35,000 on Mar 1 | Yes | $35,000 | +$15,000 | Expansion (ramp) | Not Churn |
F | Downgrade: Enterprise $50,000 → Standard $42,000 (Mar 20) | Yes | $42,000 | −$8,000 | Contraction — Down-sell | Tier/plan downgrade |
G | Remove Analytics module ($6,000/yr) on Mar 25 (prior total $30,000) | Yes | $24,000 ($30,000 → $24,000) | −$6,000 | Contraction — Down-sell | Module removed; account still active |
Churn ARR (March): $54,000 = Contraction $14,000 (F + G) + Logo Churn $40,000 (D)
ARR Bridge (March):
New Logo ARR: +$24,000 (A)
Expansion ARR: +$33,000 (C + E)
Contraction ARR: −$14,000 (F + G)
Logo Churn ARR: −$40,000 (D)
Net New ARR: $24,000 + $33,000 − $14,000 − $40,000 = +$3,000
Ending ARR (Mar 31): $1,200,000 + $3,000 = $1,203,000
Notes:
Total Churn ARR is the sum of Logo Churn and Contraction that became effective in March.
A, C, E are not churn; B sits in CARR until April.
If a customer down-sells and later cancels in the same period, show both (the reduction first, then churn to $0).
Ignore one-offs (credits/refunds); ARR tracks recurring commitments only.
Best Practices
Break it out: Always report Logo Churn vs. Contraction; add them for Total Churn.
Reason codes: Tag one clear reason per event (budget, low usage, price, product gap). Review top drivers monthly.
Early warnings: Watch decline signals (usage drop, non-payment, expiring terms) and assign an owner to each at-risk account.
Reconcile monthly: Tie your Churn ARR to the ARR bridge and the contract/amendment log.
Close the loop: Share top churn drivers with Product/ Customer Success and agree on fixes (onboarding, features, packaging/price).
Best Practices
Break it out: Always report Logo Churn vs. Contraction; add them for Total Churn.
Reason codes: Tag one clear reason per event (budget, low usage, price, product gap). Review top drivers monthly.
Early warnings: Watch decline signals (usage drop, non-payment, expiring terms) and assign an owner to each at-risk account.
Reconcile monthly: Tie your Churn ARR to the ARR bridge and the contract/amendment log.
Close the loop: Share top churn drivers with Product/ Customer Success and agree on fixes (onboarding, features, packaging/price).
Best Practices
Break it out: Always report Logo Churn vs. Contraction; add them for Total Churn.
Reason codes: Tag one clear reason per event (budget, low usage, price, product gap). Review top drivers monthly.
Early warnings: Watch decline signals (usage drop, non-payment, expiring terms) and assign an owner to each at-risk account.
Reconcile monthly: Tie your Churn ARR to the ARR bridge and the contract/amendment log.
Close the loop: Share top churn drivers with Product/ Customer Success and agree on fixes (onboarding, features, packaging/price).
FAQs
What’s included in Churn ARR?
Logo churn to $0 + contraction (downgrades, fewer seats, or price cuts) that became effective this period.Can Churn ARR go up or down?
Yes—compared with prior periods—depending on how many (and how large) cancels or reductions took effect this period.Do signed future cancels count now?
No. Count only on the effective end date. Until then, they stay in ARR (you can track them on a risk list).Is this the same as Net New ARR?
No. Net New ARR = New Logo + Expansion − Contraction − Logo Churn. Total Churn ARR is just the loss side (Contraction + Logo Churn).What if a churn is reversed?
If the customer rescinds before the end date, don’t record churn. If they return after churning, record it in that later period (often as Reactivation/New Logo); don’t backdate.
FAQs
What’s included in Churn ARR?
Logo churn to $0 + contraction (downgrades, fewer seats, or price cuts) that became effective this period.Can Churn ARR go up or down?
Yes—compared with prior periods—depending on how many (and how large) cancels or reductions took effect this period.Do signed future cancels count now?
No. Count only on the effective end date. Until then, they stay in ARR (you can track them on a risk list).Is this the same as Net New ARR?
No. Net New ARR = New Logo + Expansion − Contraction − Logo Churn. Total Churn ARR is just the loss side (Contraction + Logo Churn).What if a churn is reversed?
If the customer rescinds before the end date, don’t record churn. If they return after churning, record it in that later period (often as Reactivation/New Logo); don’t backdate.
FAQs
What’s included in Churn ARR?
Logo churn to $0 + contraction (downgrades, fewer seats, or price cuts) that became effective this period.Can Churn ARR go up or down?
Yes—compared with prior periods—depending on how many (and how large) cancels or reductions took effect this period.Do signed future cancels count now?
No. Count only on the effective end date. Until then, they stay in ARR (you can track them on a risk list).Is this the same as Net New ARR?
No. Net New ARR = New Logo + Expansion − Contraction − Logo Churn. Total Churn ARR is just the loss side (Contraction + Logo Churn).What if a churn is reversed?
If the customer rescinds before the end date, don’t record churn. If they return after churning, record it in that later period (often as Reactivation/New Logo); don’t backdate.
Related Metrics
Commonly mistaken for:
Contraction ARR (customer stays but pays less; partial reduction)
Churn Rate (a percentage; Logo Churn ARR is a dollar amount)
Related Metrics
Commonly mistaken for:
Contraction ARR (customer stays but pays less; partial reduction)
Churn Rate (a percentage; Logo Churn ARR is a dollar amount)
Related Metrics
Commonly mistaken for:
Contraction ARR (customer stays but pays less; partial reduction)
Churn Rate (a percentage; Logo Churn ARR is a dollar amount)
Source of:
Components:
Index