What is Churn?

Churn is one of the scariest metrics for any SaaS company. It represents the rate at which customers stop using or paying for a product over a given period. Because of its direct impact on revenue and growth, understanding and managing churn is critical for subscription-based businesses.

Churn can refer to customer churn (number of customers lost) or revenue churn (recurring revenue lost).

Why it matters

Churn compounds over time. Losing customers doesn’t just reduce revenue today, it reduces all future revenue those customers would have generated. Because acquiring new users is typically far more expensive than keeping existing ones, reducing churn is one of the most impactful ways to improve profitability, stabilize growth, and increase lifetime value (LTV).

Even a small reduction in churn can have a dramatic impact on long-term revenue.

How to measure Churn

There are two ways how to measure churn: customer churn and revenue churn.

Customer Churn

Customer churn (logo churn) measures how many customers cancel or fail to renew within a period. Most SaaS companies track churn monthly and annually. To calculate customer churn rate:

Customer churn rate = (Number of customers lost during a period ÷ Customers at the start of the period) × 100

Revenue Churn

Revenue churn measures recurring revenue lost from cancellations, downgrades, and non-renewals. Revenue churn is often more useful because losing a high-value customer is more impactful than losing several low-value ones. To calculate revenue churn rate:

Revenue churn rate = (MRR lost from churn during a period ÷ MRR at the start of the period) × 100

Examples

If you start the month with 1,000 customers and 40 cancel, your monthly customer churn rate is:

40 ÷ 1,000 × 100 = 4%

If those customers represented $3,000 in MRR out of a starting $100,000 MRR, your monthly revenue churn is:

3,000 ÷ 100,000 × 100 = 3%

Best practices

• Identify why customers are leaving by tracking cancellation reasons and running exit surveys.
• Analyze churn by segment (plan, cohort, industry) to reveal patterns.
• Strengthen onboarding and early product adoption to prevent early-life churn.
• Use in-app messaging and customer success to proactively solve issues.
• Offer annual plans, loyalty rewards, or usage-based pricing to improve retention.
• Monitor churn alongside net revenue retention (NRR) for a full picture of growth.

FAQs

What is a "good" churn rate?

A "good" churn rate varies by industry and business model. However, for SaaS companies, a monthly churn rate below 5% is generally considered acceptable, while rates below 2% are excellent. It's important to benchmark against similar companies in your sector.

What is voluntary vs. involuntary churn?

Voluntary churn happens when customers actively choose to cancel their subscription. Involuntary churn occurs when payments fail due to expired credit cards, insufficient funds, or other billing issues. Involuntary churn can often be fixed with better dunning and payment retries.

What is negative churn?

Negative churn occurs when expansion revenue (upgrades, add-ons, seat increases) is greater than the revenue lost from churn. This leads to net revenue retention above 100%, which is a hallmark of strong SaaS companies.

How do you reduce churn?

Improve onboarding, reduce time to value, enhance support, fix product issues, add expansion paths, and proactively engage at-risk customers. Tools for in-app guidance and personalized onboarding like Flows can help significantly.