Churn rate measures how quickly a business loses customers. For a subscription business, it's the percentage of active subscribers who cancel in a given period. If a company starts the month with 1,000 customers and 30 cancel, its monthly churn rate is 3%.
Churn is one of the most important metrics for any recurring-revenue business because it defines a ceiling on growth. A company with 10% monthly churn is replacing its entire customer base every 10 months just to stay flat. No acquisition strategy can sustainably overcome deeply negative retention.
Customer Churn vs. Revenue Churn
Customer churn counts the number of customers lost.
Revenue churn (often called MRR churn or gross revenue churn) counts the revenue lost from cancellations and downgrades. These two metrics diverge when churned customers are disproportionately large or small relative to the average account.
Net revenue churn subtracts expansion revenue — upsells, seat additions, plan upgrades — from gross revenue churn. A business with 5% gross revenue churn but 8% expansion from existing customers has negative net revenue churn: the customer base grows in revenue terms even when some customers cancel.
Benchmarks
| Segment | Healthy Monthly Churn |
|---|---|
| SMB SaaS | 3–5% |
| Mid-market SaaS | 1–2% |
| Enterprise SaaS | 0.5–1% |
| Consumer apps | 5–10% |
Calculating Churn Rate
Monthly Churn Rate = (Customers Lost in Period ÷ Customers at Start of Period) × 100
For annual churn: compound monthly rates using Annual Churn ≈ 1 − (1 − Monthly Churn)^12. A 3% monthly churn rate equals approximately 30% annual churn — a meaningful difference from what the monthly number might suggest at first glance.
Churn and Conversion Rate Optimization
Churn is often treated as a product or customer success problem, but CRO influences it in several ways:
- Onboarding optimization reduces early churn from users who signed up but never reached the moment of value
- Pricing page optimization ensures customers choose the plan that matches their actual usage, reducing cancellations from customers who feel they're overpaying
- Better-qualified acquisition (via improved landing page targeting) attracts customers with higher product-market fit, who naturally retain longer
The relationship between customer lifetime value and churn is direct: halving churn approximately doubles average customer lifetime and, by extension, LTV.