Churn Rate
Churn rate is how quickly customers are leaving your business. If you have 100 customers and lose 5 in a month, your monthly churn rate is 5%. High churn means you're filling a leaky bucket — you need to keep getting new customers just to stay the same size.
Churn rate measures the percentage of customers (or revenue) lost over a defined period. It is one of the most important metrics in subscription businesses because it directly determines the long-term economics of customer acquisition.
Types of churn:- : Percentage of customers who cancel in a period - : Percentage of monthly recurring revenue lost to cancellation and downgrades - : Revenue lost to churn and downgrades, without accounting for expansion - : Gross churn minus expansion revenue from existing customers
Net Revenue Retention (NRR) = 1 − Net Revenue Churn. An NRR above 100% means existing customers are expanding faster than they're churning — the business grows even without acquiring new customers.
Churn benchmarks:B2B SaaS companies below 5% annual logo churn are considered healthy. Monthly churn above 2% in SaaS indicates significant retention problems. Enterprise SaaS with multi-year contracts typically sees annual churn of 3–7%.
Key Takeaways
- Net Revenue Retention above 100% is a signal of strong product-market fit and expansion potential
- Monthly churn compounds — 2% monthly churn is approximately 22% annual churn
- Cohort analysis reveals whether churn is improving or worsening over time
- Churn causes fall into three categories: voluntary (active cancellation), involuntary (failed payments), and passive (non-renewal)
Common Questions
What's the difference between gross churn and net churn?
Gross churn only measures revenue lost. Net churn subtracts expansion revenue from existing customers. A company can have positive gross churn (losing customers) but negative net churn (still growing from expansions) — this is the hallmark of a healthy B2B SaaS business.
At what churn rate should I be alarmed?
In B2B SaaS: monthly churn above 1.5% warrants immediate investigation. Annual gross churn above 10% signals significant product or fit issues. Any quarter where churn accelerates vs. prior quarter is a concerning leading indicator.