What Is Churn Rate? How to Calculate and Reduce Customer Loss in SaaS

Churn rate is the share of customers, or of revenue, that you lose in a given period. In SaaS it is usually measured monthly or annually. It is a lagging indicator: it tells you how many customers already left, not which ones are about to.

There are two kinds, and you need both:

• Customer churn (logo churn) counts accounts: how many customers cancelled or did not renew. Our guide to logo churn goes deeper.
• Revenue churn counts money: how much recurring revenue you lost through cancellations and downgrades.

Losing one large customer can hurt revenue churn more than losing ten small ones, while ten small losses may point to a product or onboarding problem. Looking at only one of the two hides half the picture.

How to calculate churn rate

Customer churn rate

Customer churn rate = customers lost during the period ÷ customers at the start of the period × 100

Example: you start the month with 400 customers and 12 cancel. Your monthly customer churn rate is 12 ÷ 400 × 100 = 3%.

Gross revenue churn rate

Gross revenue churn = (MRR lost to cancellations + MRR lost to downgrades) ÷ MRR at the start of the period × 100

Example: you start the month with $200,000 MRR. Cancellations cost you $5,000 and downgrades $3,000. Gross revenue churn is (5,000 + 3,000) ÷ 200,000 × 100 = 4%.

Net revenue churn rate

Net revenue churn = (MRR lost to cancellations and downgrades − MRR gained from upsells and expansions) ÷ MRR at the start × 100

With $6,000 of expansion in the same month, net revenue churn is (8,000 − 6,000) ÷ 200,000 × 100 = 1%. When expansion is larger than the losses, net revenue churn turns negative, which is the same as net revenue retention above 100%. Our guide to net revenue retention explains the link.

Prefer not to do the math by hand? The SaaS churn calculator does it for you.

Monthly vs. annual churn

Monthly and annual churn are not related by a simple multiplication, because each month you lose a share of a smaller base. To convert a monthly rate to an annual one:

Annual churn = 1 − (1 − monthly churn)¹²

A 3% monthly churn rate is therefore about 31% a year, not 36%. Always say which period a number refers to; many published benchmarks mix the two.

Common mistakes when measuring churn

• Counting new customers in the denominator. Customers who signed up during the period cannot churn in a way that belongs to it. Use the count at the start of the period.
• Mixing customer and revenue churn. Report both, side by side.
• Ignoring downgrades. A customer who drops from 50 seats to 10 has not cancelled, but most of the revenue is gone. It belongs in revenue churn.
• One number for everyone. Churn on monthly plans, annual plans, small accounts and large accounts behaves very differently. Segment before you compare.
• Counting failed payments as voluntary churn. Involuntary churn from failed payments needs a different fix. Track it separately; our guide on dunning and churn covers it.

What a good churn rate looks like

Published SaaS benchmarks vary widely and often mix monthly and annual numbers, so compare yourself with companies of a similar size, plan mix and contract length rather than with one industry average. A few patterns from our study of 44,000 SaaS users explain most of the differences you will see:

• Monthly plans churned 4.7 times faster than annual plans. Your plan mix moves your churn rate more than almost anything else.
• Single-user accounts churned 14 to 33 times faster than accounts with a team.
• Median churn peaked at 6 to 12 months into the customer lifecycle (25%), higher than in the earliest cohort (15.7%).

The most useful benchmark is your own trend: is churn on each segment falling or rising, quarter by quarter?

How to reduce churn

Churn rate tells you how big the problem is, not which customers to save. To bring it down:

1. See it coming. Most churning customers show warning signs 30 or more days before they cancel. Churn prediction flags the accounts at risk while there is still time.
2. Act on every flag. A playbook turns each flagged account into tasks with an owner and a due date, so the follow-up actually happens.
3. Fix the cause, not the symptom. Activation problems need onboarding help, value problems need a value review, failed payments need dunning. Our churn prevention strategies go through them.
4. Track both churn kinds by segment, so you can see which fix worked.

If you would rather not build the prediction yourself, churn prediction software scores every account daily and shows the reasons behind each score.

FAQ

What is the difference between churn rate and retention rate?

They are two sides of the same number. If you start a period with 100 customers and lose 5, your churn rate is 5% and your customer retention rate is 95% (ignoring new customers).

What is a churn score?

A churn score estimates how likely a single account is to churn, usually on a short scale such as 1 to 5. Churn rate describes your whole customer base; a churn score helps you decide which account to call first. See churn prediction in SaaS.

Should I measure churn monthly or annually?

Both, depending on the audience. Monthly churn shows changes quickly and suits monthly plans; annual churn suits annual contracts and board reporting. Convert between them with the formula above rather than multiplying by 12.

Does churn rate include downgrades?

Customer churn does not, because the customer stays. Revenue churn does, because the revenue is gone.