How to Calculate Churn Rate

Churn rate measures the percentage of customers or revenue lost over a period. It is the inverse of retention and one of the most critical metrics for subscription and recurring revenue businesses - high churn undermines growth, while low churn compounds revenue over time.

Understanding and reducing churn is often more valuable than acquiring new customers. A 5% improvement in retention can increase profits by 25-95% according to research by Bain & Company.

Basic Churn Rate Formulas

Customer Churn Rate

Customer Churn Rate = (Customers Lost During Period / Customers at Start of Period) × 100%

Revenue Churn Rate (Gross)

Revenue Churn Rate = (Revenue Lost During Period / Revenue at Start of Period) × 100%

Step-by-Step Calculation

Step 1: Define the Time Period

• Monthly churn: Most common for operational tracking
• Quarterly churn: Smooths monthly variation
• Annual churn: Best for strategic planning

Step 2: Establish the Starting Cohort

Count customers (or revenue) at the beginning of the period:

• Active, paying customers only
• Exclude trials, free plans, internal accounts
• Use a consistent point-in-time snapshot

Step 3: Count Churned Customers/Revenue

During the period, identify:

• Customers who cancelled
• Customers whose subscriptions expired without renewal
• Revenue lost from full cancellations

Do not include:

• Downgrades (count in contraction, not churn)
• Paused accounts (typically)
• Non-renewals scheduled for future periods

Step 4: Calculate the Rate

Customer Churn = Churned Customers / Starting Customers × 100%
Revenue Churn = Churned Revenue / Starting Revenue × 100%

Example Calculations

Monthly Customer Churn

February metrics:

• Customers on Feb 1: 500
• Customers who cancelled in February: 15

Customer Churn Rate = 15 / 500 × 100% = 3%

Monthly Revenue Churn

February metrics:

• MRR on Feb 1: $100,000
• MRR lost to cancellations: $4,500

Revenue Churn Rate = $4,500 / $100,000 × 100% = 4.5%

The revenue churn (4.5%) exceeds customer churn (3%) - larger customers churned at higher rates.

Annual Churn from Monthly

To convert monthly to annual churn:

Annual Churn = 1 - (1 - Monthly Churn)^12

With 3% monthly churn:

Annual Churn = 1 - (1 - 0.03)^12 = 1 - 0.694 = 30.6%

Churn Rate Variations

Gross Revenue Churn vs. Net Revenue Churn

Gross Revenue Churn = Revenue lost (cancellations + downgrades) / Starting Revenue

Net Revenue Churn = (Lost Revenue - Expansion Revenue) / Starting Revenue

Net revenue churn can be negative if expansion exceeds losses - a sign of healthy growth.

Logo Churn vs. Revenue Churn

Scenario	Logo Churn	Revenue Churn
Lost 10 SMB customers ($50 each)	10 customers	$500
Lost 1 Enterprise customer ($5,000)	1 customer	$5,000

Both matter - logo churn shows customer retention, revenue churn shows financial impact.

Churn by Segment

Segment	Customers	Churned	Churn Rate
Enterprise	50	1	2%
Mid-Market	150	6	4%
SMB	300	18	6%

Segment analysis reveals where retention efforts should focus.

Cohort-Based Churn Analysis

Track churn by acquisition cohort:

Cohort	Month 1	Month 3	Month 6	Month 12
Jan	5%	12%	18%	28%
Apr	4%	10%	15%	-
Jul	3%	8%	-	-

Improving Month 1 churn (newer cohorts) indicates onboarding improvements are working.

Common Churn Calculation Mistakes

Mistake 1: Wrong Denominator

Using ending customers or average customers instead of starting customers changes the rate. Define and apply consistently.

Mistake 2: Including New Customers

Customers acquired during the period should not be in the denominator - they didn't have a full period to churn.

Mistake 3: Timing of Cancellation

Is churn counted when the customer cancels or when their subscription ends? Define clearly - cancellation date is more common.

Mistake 4: Mixing Voluntary and Involuntary

Voluntary churn (customer decided to leave) differs from involuntary churn (payment failure). Separate them for better insights.

Mistake 5: Ignoring Reactivations

Some "churned" customers return. Decide whether to count reactivations as reversing churn or as new acquisitions.

Reducing Churn

Improve Onboarding

• Faster time to value
• Clear activation milestones
• Proactive support during first 30 days

Increase Engagement

• Feature adoption campaigns
• Usage-based alerts
• Regular value communication

Address At-Risk Customers

• Health scoring
• Proactive outreach
• Rescue offers

Improve Product

• Fix pain points
• Add requested features
• Competitive positioning

Reduce Involuntary Churn

• Payment retry logic
• Card update reminders
• Multiple payment methods

Churn Benchmarks

Business Type	Good Monthly	Excellent Monthly
B2B SaaS Enterprise	< 0.5%	< 0.25%
B2B SaaS SMB	< 3%	< 1%
B2C Subscription	< 5%	< 3%
Consumer Mobile	< 8%	< 5%

Churn Rate in Context-Aware Analytics

metric:
  name: Customer Churn Rate
  description: Percentage of customers lost during period
  calculation: |
    COUNT(churned_customers) / COUNT(starting_customers) * 100
  time_period: Monthly
  churned_definition: Subscription cancelled or expired without renewal
  denominator: Customers active at period start
  excludes:
    - trial_only_accounts
    - internal_accounts
    - paused_subscriptions
  dimensions: [segment, acquisition_source, tenure]
  owner: customer_success
  certified: true

With explicit definitions for what constitutes churn and who is included in the denominator, churn calculations are consistent across all reporting and analysis.