The churn rate formula
Churn rate = customers lost during the period / customers at the start x 100
Only count customers who were there at the start. A customer who signs up on the 10th and cancels on the 20th is real churn, but adding them to the top of the fraction without adding them to the bottom makes your rate look worse than it is. Track them separately as early churn, which usually points to an onboarding problem.
Monthly churn compounds into annual churn
Multiplying monthly churn by 12 overstates annual churn, because each month you lose a share of a smaller base. The accurate conversion is:
Annual churn = 1 - (1 - monthly churn) ^ 12
| Monthly churn | Annual churn | Average lifetime |
|---|---|---|
| 1% | 11.4% | 100 months |
| 3% | 30.6% | 33 months |
| 5% | 46.0% | 20 months |
| 8% | 63.2% | 12.5 months |
Customer churn versus revenue churn
Customer churn tells you how many people leave. Revenue churn tells you how much money leaves, and it includes downgrades. Track both:
- Gross revenue churn = (cancelled MRR + downgrade MRR) / starting MRR. It can never be negative and shows the size of the leak.
- Net revenue retention = (starting MRR - cancelled - downgrades + upgrades) / starting MRR. Above 100% means your existing customers grow on their own.
Reading churn when you have few customers
With 30 customers, one cancellation is 3.3% churn. A single bad month can double your rate and a good one can hide a real problem. Until you have a few hundred customers, look at a rolling three-month average, and read every cancellation reason yourself. At that size the reasons are more useful than the percentage.
How to reduce churn
- Find the first moment of value. Customers who never reach it leave first. Shorten the path to it.
- Ask why people leave. A one-question cancellation survey and a reply to every answer will tell you more than any dashboard.
- Recover failed payments. Card failures cause a surprising share of churn. Retry logic and a reminder email fix much of it.
- Offer annual plans and pausing. Some customers leave because of timing, not value.
Churn feeds straight into customer lifetime value. See what your rate means in money with the LTV calculator, and turn plans into recurring revenue with the MRR calculator.
Frequently asked questions
- How do you calculate churn rate?
- Divide the customers who cancelled during a period by the customers you had at the start of it, then multiply by 100. Losing 9 of 200 customers in a month is a 4.5% monthly churn rate.
- How do I convert monthly churn to annual churn?
- Use 1 minus (1 minus monthly churn) to the power of 12. At 4.5% a month that is about 42% a year, not 54%, because each month you lose a share of a smaller base.
- What is a good churn rate for SaaS?
- It depends heavily on who you sell to. Products for small businesses and consumers often see 3% to 7% monthly churn, while products sold to larger companies on annual contracts are often far below 1% a month.
- What is the difference between customer churn and revenue churn?
- Customer churn counts people who leave. Revenue churn counts the recurring revenue lost to cancellations and downgrades. Losing one large customer can be low customer churn and high revenue churn.
- What is net revenue retention?
- The share of starting recurring revenue you still have after cancellations, downgrades, and upgrades from the same customers. Above 100% means existing customers grow revenue even before you add new ones.