What is Churn Rate?
Churn rate is the percentage of customers (or revenue) you lose over a given time period. For SaaS businesses, churn is the counterweight to growth—even strong acquisition can't overcome high churn. It's one of the most critical health indicators for any subscription business.
How to Calculate Churn Rate
Customer Churn Rate
Revenue Churn Rate (Gross)
Calculation Example
At the start of the month, you have:
- 95 active customers
- 3 past-due customers
- 5 customers who canceled during the month
The denominator includes canceled customers for the period to avoid understating churn when measuring over a defined timeframe.
Customer Churn vs Revenue Churn
These two metrics can tell very different stories. A company might have low customer churn but high revenue churn if enterprise customers are downgrading. Conversely, you could have high customer churn but low revenue churn if only low-value customers are leaving.
Customer (Logo) Churn
The percentage of customers who cancel. Treats every customer equally regardless of plan size. Good for understanding product-market fit.
Revenue (MRR) Churn
The percentage of MRR lost to cancellations and downgrades. Weights each customer by their revenue contribution. Better for financial planning.
Gross vs Net Revenue Churn
Gross revenue churn only counts lost MRR (cancellations + downgrades). Net revenue churn also factors in expansion revenue from existing customers (upgrades, add-ons).
If your expansion revenue exceeds your lost revenue, you have negative net churn—a sign of a very healthy SaaS business. This means your existing customers are worth more each month even without new sign-ups.
Churn Rate Benchmarks
These are rough industry averages. Your acceptable churn rate depends on your pricing, market, and customer segment.
How to Reduce Churn
- Fix involuntary churn first. Failed payments cause 20–40% of all churn. Set up dunning emails and payment retry logic.
- Improve onboarding. Customers who reach their “aha moment” faster retain better.
- Monitor engagement. Identify at-risk customers by usage drops before they cancel.
- Offer annual plans. Annual subscriptions have significantly lower churn than monthly.
- Collect cancellation reasons. Understand why customers leave so you can address root causes.
Related Metrics
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