Churn is the share of customers, or revenue, you lose in a period. It is the number that decides whether growth compounds or leaks away. Customer churn counts accounts; revenue churn counts money, and the two can tell very different stories.
How it works
Monthly customer churn is customers lost during the month divided by customers at the start of the month. New customers who joined and left in the same month are usually excluded, so the rate isn't distorted by sign-up volume.
Annual churn is not monthly churn × 12. Each month you lose a share of a smaller base, so the survivors compound: annual churn = 1 − (1 − monthly churn)^12.
Gross revenue churn is MRR lost to cancellations and downgrades divided by starting MRR. Net revenue churn subtracts expansion revenue from existing customers. When expansion is bigger than losses, net churn goes negative, which means the customer base grows even without new sign-ups.
A worked example
Losing 30 of 1,000 customers is 3% monthly churn. Annualized, that is 1 − 0.97^12 = 30.6%, not 36%. Losing $1,200 of $50,000 MRR is 2.4% gross revenue churn, but $1,500 of expansion makes net revenue churn −0.6%. The average customer stays 1 ÷ 3% = 33.3 months.
Questions people ask
What is a good monthly churn rate for SaaS?
It depends on who you sell to. Products for small businesses often see 3% to 7% monthly customer churn, while products sold on annual contracts to larger companies often stay under 1% a month.
Why is my revenue churn lower than my customer churn?
Usually because the customers leaving are smaller than average. That is a healthier position than the reverse, where your biggest accounts are the ones cancelling.
Should I use customer churn or revenue churn?
Track both. Customer churn shows product fit and onboarding problems. Revenue churn, especially net revenue churn, shows whether the business grows from its existing customers.
Guides
- How to Choose Your Annual Plan Discount (Using Your Churn Rate)The right annual discount depends on how long monthly customers actually stay. Here's how to find the discount where annual earns as much as monthly.
- The SaaS Quick Ratio: Measuring Growth EfficiencyTwo companies can add the same net new MRR in very different ways. The quick ratio shows how much you gain for every dollar you lose.
- Customer Churn vs Revenue Churn: Which One Should You Watch?Losing 3% of customers can mean losing less than 3% of revenue, or growing anyway. Here's how customer, gross revenue and net revenue churn differ.
- Why Annualizing Monthly Churn Isn't Just Multiplying by 12A 3% monthly churn rate doesn't compound to 36% a year. It compounds to about 30%. Here's the actual math, and why the difference matters.