Churn Rate
The percentage of customers or revenue lost during a given time period — the single most important health metric for subscription businesses.
What Is Churn Rate?
Churn rate measures the percentage of customers (or revenue) that leave during a specific time period. Monthly churn of 5% means 5% of your customer base cancelled that month. Churn compounds brutally: 5% monthly churn means roughly 46% annual churn. A SaaS business with high churn is functionally running on a treadmill — new acquisition just replaces losses.
Also Known As
- Finance teams: attrition rate, cancellation rate
- CS teams: logo churn, customer loss rate
- Product teams: user churn
- Growth teams: leakage rate
How It Works
A SaaS company starts the month with 1,000 customers. It acquires 120 new customers and loses 50 to cancellation. Churn rate = 50 / 1,000 = 5% monthly logo churn. On an LTV basis, if average customer pays $100/mo, each lost customer represents roughly $2,000 in lifetime value at that churn rate (simple geometric series: $100 / 0.05). To grow, the company needs to acquire more than 50 customers per month — and dropping churn from 5% to 3% instantly improves LTV by about 67%.
Best Practices
- Do segment churn by cohort, plan, and acquisition source. Blended churn hides critical variance.
- Do distinguish voluntary from involuntary churn. Failed credit cards (involuntary) are solvable with dunning; product dissatisfaction (voluntary) is not.
- Do measure both logo churn and revenue churn. They tell different stories.
- Don't compare your churn to published benchmarks without matching the segment. SMB SaaS churn ~5%/mo; enterprise SaaS churn ~1%/year.
- Don't exit-survey only the ones who respond. Response bias will distort your reason codes.
Common Mistakes
- Computing monthly churn as annual churn / 12. Churn compounds — the math is wrong.
- Treating churn as a customer success problem. Most churn is decided in the first 30 days, which is a product and onboarding problem.
Industry Context
SMB SaaS typically runs 3-7% monthly churn. Mid-market SaaS 1-3%/mo. Enterprise SaaS 5-15%/year. Consumer subscription apps often run 20-40%/year (streaming, fitness). Ecommerce doesn't really churn — it just has repeat purchase rates. Lead gen has no churn concept; it's transactional.
The Behavioral Science Connection
Churn correlates with unmet expectations (prospect theory) and cognitive dissonance — users who can't justify their continued spend find reasons to leave. Churn prevention works best through sunk-cost effects (user-generated content, integrations, workflows) and habit loops (daily use).
Key Takeaway
Churn is a product and onboarding problem masquerading as a CS problem. Most churn outcomes are determined within the first 30 days of signup — everything after is damage control.