What is churn rate?
Customer churn rate is the percentage of customers who stop paying you in a given period — the inverse of retention. For SaaS and subscription businesses, it's the single most important metric after MRR because it sets the ceiling on how large you can grow.
Monthly churn rate = (Lost customers ÷ Starting customers) × 100
1,000 customers at the start, 50 churned → churn = 50 ÷ 1,000 = 5%. At 5% monthly churn, you lose about half your customer base every year — and need to replace them just to stay flat.
How to calculate churn rate (step by step)
- Count active customers at the start of the period (usually beginning of month).
- Count customers lost during the period — canceled, did not renew, or went inactive.
- Divide lost by starting × 100 — that's your monthly churn rate.
- Do NOT just multiply by 12 for annual — churn compounds: Annual = 1 − (1 − monthly)^12.
Worked example: SaaS monthly churn
A B2B SaaS company with 1,000 customers at month start:
| Metric | Value |
|---|---|
| Starting customers | 1,000 |
| Lost this month | 50 |
| Monthly churn rate | 5.0% |
| Monthly retention rate | 95.0% |
| Annual churn (compounded) | 46.0% |
| Annual retention | 54.0% |
| Implied avg lifespan | 20 months |
The wrong shortcut (5% × 12 = 60%) overstates annual churn by 14 points. Always compound: at 5% monthly, 1 − (0.95)^12 = 46%. The company loses nearly half its customers per year. To grow, new customer acquisition must exceed 5% of the base each month — a high bar.
Revenue churn vs customer churn
Customer churn counts logos. Revenue churn counts dollars. A company could have 5% customer churn (lost SMB accounts) but only 2% revenue churn (kept enterprise accounts). Or the reverse: lost one whale and revenue churn spikes. Track both — they tell different stories.
What's a good churn rate?
SaaS benchmarks by segment (2025-2026 data):
| Segment | Monthly churn | Annual churn |
|---|---|---|
| Enterprise SaaS | 0.5–1.0% | 6–11% |
| Mid-market B2B | 1.5–3.0% | 17–31% |
| SMB SaaS | 3.0–5.0% | 31–46% |
| Best-in-class (any segment) | <0.5% | <6% |
"Good" depends on your ACV. High-churn SMB SaaS can still work if CAC is low and payback is fast. Low-churn enterprise SaaS can justify high CAC because LTV is long. Use the CAC payback calculator to connect churn to unit economics.
How to reduce churn
- Improve onboarding — most churn happens in the first 90 days.
- Identify at-risk accounts with usage data and intervene before they cancel.
- Build sticky features and integrations that raise switching cost.
- Segment by churn risk and assign CS resources to high-value at-risk accounts.
Churn and LTV
Churn rate directly sets customer lifespan and LTV. At 5% monthly churn, average lifespan is 20 months. At 2% churn, it's 50 months — 2.5× longer, 2.5× higher LTV, all else equal. That's why churn reduction compounds: it raises LTV without changing AOV or margin. Use the customer lifetime value calculator to see the impact.