What Is Churn Rate? How to Calculate It, What a Good Rate Is and How to Reduce It

What is churn? (Short answer)

Churn is customer loss: customers cancelling or not renewing a subscription, or simply no longer buying from a business. Churn rate (customer churn rate, attrition rate) is that loss as a share of the customer base at the start of the period.

Formula: Churn rate = (Customers lost during the period / Customers at the start of the period) × 100. A SaaS company that starts October with 800 active subscribers and loses 40 during the month has a 40 / 800 = 5% monthly churn rate. The flip side is retention: 95%.

The term is used in SaaS and subscriptions, telecom (cancelled lines, number porting), banking (closed accounts) and in e-commerce where repeat purchases matter. All amounts in this article are example figures; to try your own numbers, use the Churn Rate Calculator.

How do you calculate churn rate? Step-by-step example

The example company is a B2B SaaS with monthly plans. It starts October with 800 active subscribers and an average revenue per account (ARPA) of $45, so MRR is $36,000. In October it adds 70 new customers and loses 40, ending the month with 830.

Correct calculation: 40 / 800 = 5%. The 70 new customers are not part of this calculation; to measure their losses, use cohort analysis (below). Where subscriptions start throughout the month and the base changes quickly, some teams use the average customer count instead: 40 / ((800 + 830) / 2) = 40 / 815 ≈ 4.9%. Whichever method you choose, use the same one every month.

• Step 1 — Pick the period: a month for monthly plans; a year or quarter for annual contracts
• Step 2 — Count active paying customers at the start (excluding trials and free plans): 800
• Step 3 — Count how many of them left during the period (cancelled + not renewed + closed for non-payment): 40
• Step 4 — Divide and multiply by 100: 40 / 800 × 100 = 5%
• Step 5 — Split losses by type: 28 voluntary cancellations (3.5%) + 12 failed payments (1.5%)

What is the most common churn calculation mistake?

The denominator. Even with the same number of lost customers, what you divide by changes the result and makes churn look lower at fast-growing companies. Three results from the same October data:

• Correct: 40 / 800 (start of period) = 5.0%
• Wrong: 40 / 830 (end of period) = 4.8% — customers acquired during the month sneak into the denominator
• Wrong: 40 / 870 (start + new customers) = 4.6% — brand-new customers inflate the base before they could realistically churn
• Other mistakes: counting trial users as customers, keeping accounts with failed payments 'active' for months, counting a plan change as a cancellation plus a new signup

How do you convert monthly churn to annual churn?

Don't multiply monthly churn by 12: the remaining base shrinks every month, so losses compound. Annual churn = 1 − (1 − monthly churn)^12. 5% monthly churn ≈ 46% annual churn (not the 60% you get from ×12). Without new customers, about 432 of the 800 subscribers would remain after 12 months.

Average customer lifetime ≈ 1 / monthly churn = 1 / 0.05 = 20 months. This assumes churn stays constant; in practice churn is usually high in the first months and lower later, so check it against cohort data.

What is the difference between voluntary and involuntary churn?

Voluntary churn is a deliberate cancellation: price, a missing feature, a competitor, the need going away. Involuntary churn happens when the customer did not intend to leave but the payment could not be collected: an expired or maxed-out card, a bank decline, outdated billing details.

Involuntary churn is often the cheapest churn to win back, because the customer never decided to leave. Billing platforms can retry failed charges automatically; Stripe's documentation, for example, lists 8 tries within 2 weeks as the recommended default for Smart Retries. When a card is declined with a hard decline code such as lost or stolen card, retries will not help and the customer needs to add a new payment method.

Suppose retries plus email/SMS reminders recover 6 of the 12 failed payments: losses fall to 34 and churn to 34 / 800 = 4.25%. Annual churn drops from about 46% to about 41%; with no new customers, about 475 subscribers would remain after 12 months instead of 432.

• Remind customers before their card expires
• Don't cancel after one failed charge; schedule several retries a few days apart
• On a payment failure, send an email and in-app notice with a one-click link to update billing details
• Give accounts with failed payments a short grace period instead of deleting them immediately, and report them separately

What is the difference between customer churn and revenue churn?

Customer (logo) churn counts how many customers you lost; revenue churn measures how much monthly recurring revenue (MRR) you lost. The 40 customers who left in October had $1,620 of MRR; some customers downgraded for $270 of contraction, while others upgraded for $720 of expansion.

Gross revenue churn = (Churned MRR + Contraction MRR) / Starting MRR = ($1,620 + $270) / $36,000 = 5.25%. Net revenue churn also counts expansion: ($1,620 + $270 − $720) / $36,000 = 3.25%. When expansion exceeds churn and contraction, net revenue churn goes below zero; this is negative churn, the same thing as NRR above 100%.

Note: acquiring more new customers than you lose is not negative churn; it is just net customer growth. Negative churn is measured only on revenue from existing customers.

How do you read churn with cohort analysis?

A single monthly churn number mixes loyal long-time customers with new, undecided ones. Cohort analysis tracks customers who signed up in the same month as one group and checks how many remain each month.

Example: of 100 customers who signed up in May, 82 are still active at the end of June, 74 in July, 70 in August, 67 in September and 65 in October. Month-by-month churn: 18%, 9.8%, 5.4%, 4.3% and 3.0%. Most of the loss happens in the first month, which points to onboarding rather than the product. If newer cohorts show lower first-month churn than older ones, your fixes are working.

Why does churn matter? Its effect on LTV and growth

Churn sits in the denominator of customer lifetime value (LTV): LTV = Monthly gross profit per customer / Monthly churn. With an ARPA of $45 and an 80% gross margin, monthly gross profit per customer is $36. At 5% churn LTV is $36 / 0.05 = $720; at 4.25% about $847; at 4% $900. A one-point drop in churn raises the acquisition cost (CAC) you can afford for the same customer by 25%.

The same logic applies to growth: a company that loses 5% of its base every month has to win 5% of its base in new customers every month just to stand still. That is why reducing churn is often a cheaper growth lever than increasing ad spend.

What signals warn you about churn early?

Churn rate is a lagging metric; it shows up after the customer has left. Tracking behaviour that changes before a customer leaves buys you time to act.

• Usage decline: weekly drops in logins, core feature usage or active seats
• Incomplete setup: accounts that have not completed the step that delivers core value (integration, first report, first order) within 14 days
• Support signals: unresolved tickets, repeated complaints, falling satisfaction scores
• Payment signals: card expiring soon, failed charges, downgrades
• Commercial signals: your champion leaving the company, renewal coming up in 60–90 days

How do you reduce churn? A plan by churn type

First measure why customers cancel: add an optional one-question reason list to the cancellation flow (price, missing feature, not using it, switched to a competitor, business closed, payment issue) and report the mix every month. Then match each reason with an intervention:

• Early churn (first 1–2 months): shorten onboarding, show first value in the first session, give personal help to accounts that haven't finished setup
• 'Not using it': usage-drop alerts that trigger a customer success call, usage report emails, a pause option
• Price: offer a downgrade instead of cancellation, an annual-plan discount, a smaller usage-based plan
• Missing feature / competitor: tie cancellation reasons to the product roadmap and track each reason's monthly share
• Involuntary churn: automatic retries, card-update reminders, a grace period
• Wrong customers: find high-churn segments (channel, plan, industry) and pull ad spend from them; a low-CAC customer who leaves fast is expensive

How do you measure churn in e-commerce?

Outside subscriptions, e-commerce customers don't cancel; they just stop buying. So you first define a window based on your product's natural repurchase cycle: 90, 180 or 365 days. A customer who hasn't ordered again within that window counts as churned.

Example: if 1,300 of the 2,000 customers who bought in Q1 did not order again in the next 180 days, 180-day churn is 65% and the repeat purchase rate is 35%. This number determines how much ad cost you can accept on the first order; combine it with the profit margin and ROAS calculators.