Churn Rate

What Is Churn Rate

Churn rate measures the percentage of customers who stop using your product or service during a specific timeframe. It shows whether your business retains the customers it acquires or loses them faster than it can replace them.

For subscription businesses and SaaS companies, this metric reveals the health of customer relationships. Every lost customer represents vanished recurring revenue, eliminated expansion opportunities, and potential negative word-of-mouth. When acquisition costs continue rising, keeping existing customers becomes essential for sustainable growth.

Why Churn Rate Is Important for Businesses

This metric directly determines whether your company can scale profitably. A business adding 100 customers monthly while losing 80 isn’t growing; it’s barely surviving. When churn exceeds growth rate, revenue shrinks despite new customer acquisition.

The financial impact multiplies with high-value accounts. One enterprise customer canceling can equal dozens of smaller accounts leaving. This makes tracking both customer count and associated revenue critical for understanding your retention reality.

Customer lifetime value depends entirely on how long people stay. Lower churn means each customer generates more total revenue, improving unit economics and allowing higher acquisition investment. Companies with strong retention can outspend competitors on growth because each customer delivers greater long-term value.

How to Calculate Churn Rate

Divide the customers lost during a period by the total customers at the period start, then multiply by 100 for the percentage. If you begin March with 400 customers and lose 20 by month’s end, your monthly churn rate is 5%.

Real calculations get complex quickly. Should mid-period additions count in your denominator? How do you classify paused subscriptions versus outright cancellations? These decisions affect whether you see true retention patterns or misleading data.

Most growing companies find monthly calculations too volatile. Quarterly or annual measurements smooth out anomalies and reveal clearer trends for strategic planning.

Churn Rate Formula

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

Revenue Churn Rate: (MRR Lost During Period / MRR at Start of Period) x 100 = Revenue Churn Rate %

Net Revenue Churn: ((MRR Lost – Expansion MRR) / MRR at Start of Period) x 100 = Net Revenue Churn %

The formula you use depends on what you’re measuring. Customer churn shows account loss. Revenue churn reveals financial impact. Net revenue churn accounts for expansion from existing customers, which can offset losses and create negative churn rates where expansion exceeds departures.

Types of Churn Rate

Churn Type	What It Measures	Why It Matters
Customer Churn	Percentage of accounts that cancel	Shows relationship health and product-market fit
Revenue Churn	Percentage of recurring revenue lost	Reveals the true financial impact of departures
Gross Churn	Total losses without accounting for expansion	Provides baseline retention performance
Net Churn	Losses minus expansion revenue from existing customers	Shows whether existing customers grow enough to offset losses

Each type tells part of the retention story. Customer churn might look acceptable while revenue churn signals problems if your largest accounts are leaving. Net churn can be negative when expansion revenue exceeds losses, indicating strong product value for retained customers.

What Is a Good Churn Rate

Context determines acceptable rates. Early-stage companies often see 5-10% monthly churn while finding product-market fit. Established enterprise SaaS businesses typically target under 5-7% annually.

B2B companies generally maintain lower churn than B2C because switching costs are higher and contracts are longer. Products serving mission-critical functions retain customers better than nice-to-have tools. Price points matter too; higher-cost solutions face more scrutiny but create stronger commitment once adopted.

Your customer acquisition cost sets affordability limits. If recovering acquisition costs takes 12 months, even moderate churn erodes profitability. Efficient acquisition with quick payback provides more cushion, though minimizing churn always improves economics.

Churn Rate vs Retention Rate

These metrics are inverse sides of the same coin. Retention rate shows the percentage of customers you keep, while churn rate shows the percentage you lose. If your monthly retention is 94%, your monthly churn is 6%.

Most teams find retention rate more motivating because it focuses on success rather than failure. However, churn rate makes problems more visible and urgent. A 95% retention rate sounds excellent until you realize 5% monthly churn means losing half your customer base annually.

Track both metrics, but understand they measure the same underlying behavior. Improving one automatically improves the other.

How to Reduce Churn Rate

Catch Problems Early

Churn prevention starts long before renewal dates. By the time customers say they’re leaving, you’ve already lost them. The signals predicting departure appear weeks or months earlier in usage drops, declining engagement, and support ticket patterns.

Platforms like Wyzard.ai help revenue teams identify these risk signals across every customer touchpoint. When previously active users stop logging in, when feature adoption decreases, or when engagement scores fall, these moments telegraph future churn. Spotting them early creates intervention windows that last-minute retention emails can’t provide.

Deliver Quick Wins

Customers who experience value during onboarding stay longer. Those who never activate core features churn predictably. Map the critical actions that correlate with retention, then systematically guide every new customer through them.

Maintain Ongoing Communication

Regular check-ins keep you aware of changing needs before they become cancellation reasons. Share relevant case studies, new features, and best practices that help customers extract more value. When Wyzard.ai detects engagement drops, its Agentic Email orchestrates timely, personalized outreach that addresses specific usage patterns rather than generic retention messaging.

Frequently Asked Questions

How do you calculate churn rate?

Divide the customers lost during a period by the total customers at the period start, then multiply by 100. For example, losing 15 customers from an initial 300 equals 5% churn rate. Choose monthly, quarterly, or annual timeframes based on your business model and contract lengths.

What is a good churn rate for SaaS companies?

Established B2B SaaS companies typically target 5-7% annual churn or under 1% monthly. Early-stage startups often see higher rates (3-5% monthly) while finding product-market fit. Enterprise-focused businesses generally maintain lower churn than SMB-focused products due to longer sales cycles and higher switching costs.

What causes high churn rates?

Common causes include poor onboarding experiences, unclear product value, inadequate customer support, pricing misalignment, and feature gaps compared to competitors. Technical issues, lack of engagement, and failing to evolve with customer needs also drive departures. Sometimes customers simply outgrow your solution, or face changed business circumstances.

What is the difference between customer churn and revenue churn?

Customer churn measures the percentage of accounts lost, while revenue churn tracks the percentage of recurring revenue lost. A company might have low customer churn but high revenue churn if its largest accounts are canceling. Revenue churn provides clearer financial impact visibility than customer count alone.

Can churn rate be negative?

Revenue churn can be negative when expansion revenue from existing customers exceeds revenue lost from cancellations and downgrades. This happens when upsells, cross-sells, and usage-based growth generate more MRR than churned customers take away. Customer churn cannot be negative since you can’t retain more than 100% of customers.