Key takeaways
Churn rate is the share of customers, or revenue, you lose over a period. It is the single number that decides whether a subscription business compounds or leaks. The basic formula takes ten seconds; the mistakes come from mixing periods, counting new customers in the wrong place and multiplying monthly churn by 12.
Customer churn rate = customers lost during the period ÷ customers at the start of the period × 100
Example: you start March with 400 customers, gain 50 new ones and lose 14 by the end of the month.
The 50 new customers do not belong in the formula. Including them would make churn look smaller just because you grew. If a customer joins and cancels in the same month, track them separately as early churn.
Customer churn treats a $20 account and a $2,000 account the same. Revenue churn fixes that by using monthly recurring revenue (MRR). If you are unsure how MRR is defined, start with ARR vs MRR.
| March | MRR |
|---|---|
| MRR at start | $40,000 |
| Lost to cancellations | $1,600 |
| Lost to downgrades | $400 |
| Expansion (upgrades, extra seats) | $2,400 |
| Gross revenue churn | ($1,600 + $400) ÷ $40,000 = 5.0% |
| Net revenue churn | ($2,000 − $2,400) ÷ $40,000 = −1.0% |
Negative net churn means existing customers grew revenue even after cancellations. Net revenue retention (NRR) is the same idea from the other side: 100% − (−1%) = 101%.
Churn compounds, because each month you lose a percentage of a smaller base. The correct conversion is:
Annual churn = 1 − (1 − monthly churn)12
| Monthly churn | Annual churn | Customers left after 12 months (of 100) |
|---|---|---|
| 1% | 11.4% | 89 |
| 2% | 21.5% | 78 |
| 3% | 30.6% | 69 |
| 5% | 46.0% | 54 |
| 7% | 58.1% | 42 |
To compare yours with other companies, see our SaaS churn benchmarks.
Average customer lifetime in months is roughly 1 ÷ monthly churn. At 3% churn, the average customer stays about 33 months. Multiply by average monthly gross profit per customer to estimate lifetime value: at $50 of gross profit a month, LTV ≈ $50 × 33 = $1,667. Run your numbers in the LTV calculator.
Customers lost during the period ÷ customers at the start of the period × 100. Do not include new customers acquired during the period in the denominator.
For small-business SaaS it is common but costly: 5% a month compounds to about 46% of customers lost in a year. Products sold to larger companies usually aim for under 1% monthly.
They are two sides of the same number. Retention rate = 100% − churn rate for the same group and period.
Negative net revenue churn means expansion revenue from existing customers (upgrades, more seats) is larger than the revenue lost to cancellations and downgrades, so revenue from your existing base grows even with no new customers.
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