What is Churn Rate?
Definition
Churn Rate is the percentage of customers who cancel their subscription during a given time period. It's one of the most critical metrics for SaaS companies because it directly impacts growth, revenue, and customer lifetime value.
Types of Churn
Customer Churn
Measures percentage of customers who canceled.
Revenue Churn (MRR Churn)
Measures percentage of revenue lost from cancellations and downgrades.
Important:
Revenue churn is more important than customer churn because not all customers are equally valuable.
How to Calculate Churn
Customer Churn Example
Customers at start of month: 1,000
Customers who canceled: 50
Churn Rate: (50 / 1,000) × 100 = 5%
Churn Benchmarks
| Segment | Monthly Churn | Annual Churn |
|---|---|---|
| B2C SaaS | 5-7% | 45-60% |
| SMB SaaS | 3-5% | 30-40% |
| Enterprise SaaS | <1% | 8-12% |
Why Churn Matters
Kills Growth
High churn means you're losing customers as fast as you acquire them, making growth expensive and slow.
Reduces LTV
Lower churn = longer customer lifetime = higher LTV. Reducing churn from 5% to 4% increases lifetime by 25%.
Wastes CAC Investment
If customers churn before recovering acquisition cost, you lose money on every customer.
Net Revenue Retention (NRR)
NRR measures revenue retention including expansion. It's calculated as:
Target: NRR > 100%
When NRR exceeds 100%, expansion revenue from existing customers exceeds churn. This is "negative net churn" - the holy grail of SaaS metrics.