Churn rate measures the percentage of customers or revenue lost over a given period. It is the inverse of retention and the single most important metric for subscription businesses. High churn means your product is a leaky bucket; no amount of acquisition spending can outrun customers leaving faster than they arrive.
Key Concepts
There are two types of churn. Logo churn (customer churn) measures the percentage of customers who cancel: Customers Lost / Starting Customers x 100. Revenue churn measures the percentage of MRR lost: Churned MRR / Starting MRR x 100. These can diverge significantly. Losing many small customers (high logo churn) may matter less than losing one enterprise account (high revenue churn).
Net revenue churn accounts for expansion: (Churned MRR - Expansion MRR) / Starting MRR. When expansion exceeds churn, net revenue churn goes negative, meaning your existing customer base grows without adding new customers. This is the "negative churn" that top SaaS companies achieve.
Monthly churn benchmarks: below 2% is good for SMB SaaS, below 1% is strong, and below 0.5% is exceptional (typical of enterprise products with high switching costs).
Why It Matters
Churn compounds devastatingly. A 5% monthly churn rate means losing 46% of customers annually. Even if you grow 10% monthly from new customers, nearly half your effort just replaces churned accounts. Reducing churn from 5% to 3% monthly has a larger impact on long-term revenue than doubling your acquisition rate.
Churn also signals product problems. Customers leave because they do not experience value, find alternatives, or outgrow your solution. Understanding why people churn reveals what to build, fix, or communicate differently.
In Practice
A SaaS company analyzes churn by cohort and discovers that customers who do not complete onboarding within 7 days churn at 4x the rate of those who do. They implement an onboarding checklist, trigger-based email sequences, and proactive support outreach for inactive new accounts. Within three months, 30-day churn drops from 8% to 4.5%.
Pro Tips
Segment churn analysis by customer size, acquisition channel, and usage patterns. Voluntary churn (deliberate cancellation) needs product/value improvements. Involuntary churn (failed payments) needs dunning automation, card update reminders, and retry logic. Exit surveys from churning customers are valuable. Ask "what would have kept you?" not just "why are you leaving?"