Churn Rate

Definition

Churn rate measures the percentage of customers who cancel, don't renew, or stop engaging with your product within a specific period (typically monthly or annual). Formula: (Customers Lost During Period ÷ Customers at Start of Period) × 100. For subscription businesses, churn directly impacts growth: if you acquire 100 customers monthly but lose 20 (20% monthly churn), net growth is only 80. High churn indicates problems: poor product-market fit, bad onboarding, unmet expectations, pricing issues, or competitive alternatives. Churn types include: customer churn (number of customers lost), revenue churn (dollar value lost, which can differ if high-value customers churn), and logo churn (company count, important for B2B). Critical thresholds: consumer SaaS typically sees 5-7% monthly churn acceptable, B2B SaaS should target under 5% annual churn, and enterprise contracts aim for under 10% annual. Negative churn occurs when expansion revenue from existing customers (upgrades, upsells) exceeds revenue lost from churned customers—a strong growth signal. Reducing churn 1% is often more valuable than increasing acquisition 1% because retained customers generate compound revenue over lifetime.