# Churn Rate

Quick Definition

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

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## 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)](/content/terms/nrr-net-revenue-retention/index.html)

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

### [GRR (Gross Revenue Retention)](/content/terms/grr-gross-revenue-retention/index.html)

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

### [Logo Churn vs Revenue Churn](/content/terms/logo-churn-vs-revenue-churn/index.html)

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