What is churn rate?
Churn rate is the percentage of customers, or revenue, that a business loses over a set period. It is the mirror image of retention: if you keep 95% of customers in a month, your monthly churn is 5%. Also called attrition rate, it is one of the most important health metrics for subscription and SaaS businesses, where recurring revenue depends on customers staying.
Churn is usually measured monthly or annually, and as either customer (logo) churn or revenue churn. Customer churn counts accounts lost. Revenue churn counts the recurring revenue lost, which can differ sharply when your biggest accounts behave differently from your smallest.
How do you calculate churn rate?
The basic formula is simple:
Churn rate = (customers lost during the period ÷ customers at the start of the period) × 100. If you began the month with 500 customers and lost 15, monthly churn is 15 ÷ 500 = 3%. Revenue churn swaps customers for recurring revenue: MRR lost ÷ MRR at the start.
The trap is the time frame. Because churn compounds, a rate that looks small each month becomes large across a year. At 5% monthly churn you lose about 46% of your customers over twelve months (Churnkey, 2025).
What is a good churn rate?
For B2B SaaS, the median annual churn rate is about 3.5%, split into 2.6% voluntary and 0.8% involuntary (2025 Recurly Churn Report). A common rule of thumb is to keep annual logo churn below 5%, or under 1% monthly, though the right target depends heavily on who you sell to.
Segment matters more than any single average. Enterprise customers churn below about 1.5% a month, while SMB and self-serve products often run 3% to 7% a month, and by vertical the spread runs from around 1.8% monthly for infrastructure software to 9.6% for edtech (shno.co, 2026). Compare yourself to your own segment, not the blended number.
Voluntary vs involuntary churn
Splitting churn by cause is the fastest way to find quick wins.
- Voluntary churn is customers actively cancelling, usually because they did not reach value, hit a problem, or found an alternative. Fixing it means better onboarding, product, and support.
- Involuntary churn is customers lost to failed payments and expired cards, not a decision to leave. It makes up 20% to 40% of total churn and is highly recoverable: smart dunning and card-updater tools reclaim most failed payments (shno.co, 2026).
Why churn rate matters
Churn sets the ceiling on growth. Every point of churn is revenue you must replace before you grow at all, which is why reducing it is usually cheaper than acquiring new customers. It also drives valuation: for companies in the $3M to $20M ARR range, the gap between 3% and 8% annual logo churn can mean a 2x to 3x difference in valuation multiple (Livmo, 2026). Lower churn lifts customer lifetime value and net revenue retention at once, and persistently high churn is often a sign of weak product-market fit.
How to reduce churn rate
- Fix onboarding first. A large share of churn happens in the first 90 days, so getting customers to value quickly is the highest-leverage move.
- Instrument early-warning signals. Usage typically drops in the quarter before a cancellation, giving you a window to intervene. Track it alongside customer retention rate.
- Recover failed payments. Add dunning, retries, and card updaters to reclaim involuntary churn.
- Deepen the relationship. Integrations, expansion, and proactive success reduce churn and grow revenue per account.
- Win better-fit customers. Acquiring the right accounts through compounding channels like content and organic search retains better than chasing volume.
Churn rate FAQs
What is churn rate in simple terms?
Churn rate is the share of customers, or revenue, you lose in a given period. If 100 customers start the month and 5 leave, your monthly churn rate is 5%. It is the opposite of retention and a core health metric for any subscription business.
How do you calculate churn rate?
Divide the number of customers lost during a period by the number you had at the start, then multiply by 100. Losing 15 of 500 customers in a month is 3% monthly churn. For revenue churn, use recurring revenue lost divided by recurring revenue at the start of the period.
What is a good churn rate for SaaS?
Median B2B SaaS annual churn is about 3.5%, and a common target is under 5% a year, or under 1% a month. Enterprise products should aim well below that, while SMB and self-serve products naturally run higher. Judge against your own segment rather than a blended average.
What is the difference between voluntary and involuntary churn?
Voluntary churn is customers choosing to cancel, usually a product, value, or support issue. Involuntary churn is customers lost to failed payments and expired cards. Involuntary churn is 20% to 40% of the total for many SaaS businesses and is often the fastest to fix with dunning and card updaters.
What is the difference between customer churn and revenue churn?
Customer (logo) churn counts accounts lost; revenue churn counts recurring revenue lost. They can diverge: losing many small accounts hurts logo churn more than revenue, while losing one large account does the reverse. Track both, and pair them with net revenue retention.
How can you reduce churn rate?
Improve onboarding so customers reach value fast, watch usage for early-warning drops, recover failed payments with dunning, deepen the relationship through integrations and expansion, and acquire better-fit customers. Most durable gains come from the first 90 days and from fixing involuntary churn.