Churn Rate

Quick Definition

The percentage of customers or revenue lost over a specific period, measuring how quickly you're losing business.

What is Churn Rate?

Churn rate measures the percentage of customers (logo churn) or revenue (revenue churn) you lose over a period. It's the inverse of retention and one of the most critical metrics for subscription businesses.

High churn is a business killer. If you're churning 5% of customers monthly, you're losing over 45% of your customer base annually. That means nearly half your sales effort just maintains the status quo.

Logo Churn vs Revenue Churn

Logo churn counts customers lost. Revenue churn counts dollars lost. They often differ significantly. Losing ten $100/month customers hurts more than losing one $50/month customer, but logo churn treats them equally.

Smart companies track both. Logo churn reveals product satisfaction. Revenue churn reveals whether you're losing your best or worst customers.

How to Calculate Churn Rate Step by Step

Step 1: Pick your time period and churn type. You need to decide: are you calculating monthly or annual churn, and logo churn (customers lost) or revenue churn (dollars lost)? Most SaaS companies track all four combinations. Start with monthly logo churn.

Step 2: Count customers at the start of the period. Pull your active paying customers on day 1 of the month from Stripe or your billing system. Exclude free trials and freemium users.

• Paying customers on March 1: 420

Step 3: Count customers lost during the period. A customer counts as churned when their subscription ends and they stop paying. Include cancelled accounts, failed payments that were never recovered, and expired contracts not renewed.

• Voluntary cancellations: 11
• Involuntary churn (failed payments, never recovered): 4
• Total churned customers: 15

Step 4: Calculate logo churn rate.

• Monthly Logo Churn = 15 ÷ 420 = 3.57%

Step 5: Calculate revenue churn. Now do the same thing with dollars:

• Starting MRR: $84,000
• MRR lost from churned customers: $4,200
• Monthly Revenue Churn = $4,200 ÷ $84,000 = 5.0%

Revenue churn (5.0%) is higher than logo churn (3.57%) — meaning you're losing larger-than-average customers. That's a red flag worth investigating.

Step 6: Calculate net revenue churn. Factor in expansion revenue from remaining customers:

• Expansion MRR from existing customers: $3,100
• Net Revenue Churn = ($4,200 - $3,100) ÷ $84,000 = 1.3%

If expansion exceeds churn, you have negative net revenue churn — the gold standard.

Step 7: Annualize. Don't multiply monthly churn by 12. Use the compound formula: Annual Churn = 1 - (1 - Monthly Churn)^12. At 3.57% monthly: Annual Churn = 1 - (0.9643)^12 = 35.6%. That's high.

Common mistakes founders make:

• Counting paused or downgraded accounts as churned
• Not separating voluntary churn (customer chose to leave) from involuntary churn (payment failure)
• Multiplying monthly churn by 12 instead of compounding (understates annual churn)
• Including free-to-paid conversion failures as churn (they were never customers)
• Not segmenting by plan, cohort, or customer size

What's a Good Churn Rate?

For SMB SaaS: 3-5% monthly churn is common. For mid-market: 1-2% monthly. For enterprise: less than 1% monthly (or 5-7% annually). Consumer subscriptions often see higher churn than B2B.

Formula

Monthly Churn Rate = (Customers Lost in Month) ÷ (Customers at Start of Month) × 100

Revenue Churn = (MRR Lost to Churn) ÷ (Starting MRR) × 100

Annual Churn ≈ 1 - (1 - Monthly Churn)^12

Example

Monthly metrics:

• Customers at start: 500
• Customers lost: 15
• Starting MRR: $100,000
• MRR lost: $4,500

Logo Churn = 15 ÷ 500 = 3% monthly

Revenue Churn = $4,500 ÷ $100,000 = 4.5% monthly

Revenue churn is higher, meaning larger customers are leaving. That's a red flag worth investigating.

Related Terms

NRR (Net Revenue Retention)

The percentage of recurring revenue retained from existing customers over a period, including expansion, contraction, and churn.

GRR (Gross Revenue Retention)

The percentage of recurring revenue retained from existing customers, excluding expansion revenue and only accounting for churn and contraction.

Logo Churn vs Revenue Churn

Logo churn counts customers lost; revenue churn counts dollars lost. They reveal different aspects of retention health.