How to Calculate Churn Rate

Calculating churn rate is pretty simple, and only requires a few key pieces of information. To begin, track the number of paying customers over a certain timeframe, such as a week, month, or quarter. Churn rate measures the change of this number over time.

The formula for churn rate is:

Churn Rate = (Number of Customers Lost / Number of Total Customers) x 100

Churn rate is usually expressed as a percentage. If your churn rate turns out to be a negative number – you’re in luck – this means you’ve actually gained more customers than you’ve lost. Keep it up!

An Example Scenario:

Let’s assume you’re a B2B SaaS business owner for this example. First, let’s look at your metrics:

  • You charge $100/month for your service.
  • Last month, you had 1,000 paying customers.
  • Unfortunately, it looks like 50 of your customers have left this month. By the end of the month, you now have 950 paying customers.

Since we tracked our customers over a month, we’re going to calculate a Monthly Churn Rate:

  1. Divide the number of lost customers (50) by the number of customers you had last month (1,000) and the result is 0.05
  2. Multiplying 0.05 x 100 gives you a churn rate of 5%

Don’t worry – there are lots of ways you can improve your churn score.

How to Improve Churn Rate

Reducing churn is critical for sustainable growth and profitability. Here are some proven strategies to lower your churn rate:

Nail the Customer Onboarding Experience: Ensure new users see value from your product right away through well-designed onboarding flows, guided product tours, and activation milestones. Poor onboarding leads to high early churn.

Offer Annual Billing: Transition customers to annual plans from monthly to reduce conscious churn opportunities and reinforce longer-term commitment.

Implement Smart Payment Retry Logic: Recover revenue leakage from failed payments through intelligent dunning campaigns and retries before subscriptions are forcibly churned.

Enable Subscription Pauses: Allow customers to temporarily pause rather than cancel subscriptions, making it easier to reactivate when their need arises again (e.g. summers for education products).

Identify & Re-engage Inactive Users: Monitor usage to catch dormant "zombie" customers before they churn. Re-engagement campaigns can reignite interest.

Proactively Identify People who are Going to Churn: Being able to predict which active customers are at high risk of churning can allow for even more proactive churn prevention.

By analyzing usage data and behavioral signals, tools like Upollo can identify your highest churn risks on a per-customer basis. This allows you to intervene with personalized save campaigns, offers, or customer support before they actually churn - maximizing retention opportunities. Keen to learn more? Try Upollo for free.

Other Methods of Calculating Churn Rate

Customer Churn vs Revenue Churn

Two important measures of churn are customer churn and revenue churn. Customer churn tracks the number of customers lost, while revenue churn looks at the monthly recurring revenue (MRR) lost from churning customers. It's important to monitor both, as solely focusing on customer churn can mask issues with higher-value customers churning. Looking only at revenue churn may obscure a large number of lower-value customers churning, which can impact growth.

The formula for Revenue Churn Rate is:

Revenue Churn Rate = Revenue Lost from Churned Customers / Total Revenue at Start of Period

This can provide a more nuanced view, as you account for the fact that some customers may have higher revenue contributions than others.

Customer Churn by Segment or Cohort

In addition to total customer churn, it can be insightful to break down churn rates by customer segments like pricing plan, acquisition source, company size, industry and more. This allows you to identify which segments are exhibiting higher or lower churn.

You can segment churn rates by different cohorts or segments, such as:

  • Acquisition channel/campaign
  • Pricing plan
  • Customer demographics
  • Product usage patterns (e.g. Has invited someone, or has not done a specific action)
  • Firmographic data (e.g. company size, location, or company revenue

This allows you to identify which cohorts are exhibiting higher/lower churn and prioritize retention efforts accordingly.

Voluntary vs Involuntary Churn

Churn can be further divided into voluntary (customers consciously cancelling) and involuntary churn. Understanding the drivers of each type is important for shaping retention strategies.

Voluntary Churn Examples:

  • Customer canceled because they didn't find sufficient value in the product
  • Customer moved to a competitor's product/service
  • Customer's circumstances changed and they no longer needed the product (e.g. solved problem another way, company changes)
  • Customer felt the ROI no longer justified the cost of the product
  • Customer had a one-off or limited use case that was completed

Involuntary Churn Examples:

  • Payment failure due to expired/cancelled credit card
  • Customer forgot to update new payment method after getting a new card
  • Customer left the company that paid for the subscription
  • Customer lost access to account due to forgotten password/email

Involuntary churn is often related to payment or access issues that can be mitigated through payment retry logic, account recovery flows, and more persistent payment credentials. Voluntary churn signals concerns with product-market fit, customer experience, pricing, or competition that may require product improvements, or revamped messaging and marketing.

Churn Rate Prediction

You can project future churn rates based on leading indicators like:

  • Negative product reviews/NPS scores
  • Support ticket volumes (also taking into account Resolved vs. Unresolved) 
  • Free trial conversion rates
  • Product usage and engagement

This allows you to forecast churn spikes and be proactive with prevention strategies.

Continue Exploring

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Prevent Churn Before it Happens

Proactively prevent churn by knowing who is going to churn and why. More happy customers and higher NDR.

Frequently Asked Questions: Churn Rate

What is a churn rate?

Churn rate measures the percentage of customers who cancel or opt-out of your product or service over a given time period. It's a critical metric for subscription-based businesses as it directly impacts revenue, growth potential, and overall profitability.

A high churn rate is a red flag, signaling issues with product-market fit, customer experience, pricing model, or competitive landscape. Monitoring and minimizing churn should be a top priority for SaaS companies looking to build sustainable, profitable businesses.

What’s the average churn rate for SaaS companies?

While churn rates can vary across industries, a churn rate between 5–20% annually is typically viewed as healthy for SaaS businesses (Data from Stripe). Churn rates above 20–30% are considered relatively high and might indicate a mismatch between the customers you’re bringing onboard and the price/offering of your company, but this can vary for different industries. Also note that a monthly churn rate will usually differ from an annual churn rate. 

Here are some churn benchmarks for various industries:

  • Media and entertainment: 20%–30%
  • Online retail subscriptions: 15%–20%
  • Fitness and wellness: 10%–15%
  • SaaS (software-as-a-service): 5%–7%
  • Telecommunications: 2%–5%
How can I reduce churn for my SaaS business?

Improving customer onboarding, offering top-notch support, continuously enhancing product features, implementing customer health scoring, and nurturing product champions can all help minimize churn. 

Need more ideas for reducing churn? Try Upollo for free.

Is logo churn the same as revenue churn?

No, logo churn and revenue churn are different metrics. Logo churn tracks the number of customers lost, while revenue churn measures the monthly recurring revenue (MRR) lost from churning customers. For more info, check out our section on Revenue churn vs. Customer churn above.

Does churn affect customer lifetime value (LTV)?

Absolutely. Since LTV is calculated based on factors like gross margins and churn rates, a high churn rate will directly lower a customer's projected LTV. Reducing churn increases LTV.

How frequently should I measure churn rate?

Churn rate should be monitored on a continuous basis to quickly identify and address any concerning spikes. Most SaaS companies measure churn at least monthly, while many track it weekly or even daily. Analyzing churn trends over time is important, but being able to course-correct at the first signs of increasing churn is ideal. An annual churn metric provides a high-level view for business reviews as well.