What is Churn Rate and why is it critical?
Churn Rate is the percentage of the customers you had at the start of a period who left during that period. In SaaS and subscription models churn is the silent killer of growth — every lost customer offsets a chunk of new sales and lowers real net growth.
Churn is measured two main ways: Customer Churn on customer count, Revenue Churn on lost MRR/ARR. Enterprise tends to prefer Revenue Churn because it reflects the impact of larger accounts. Healthy SaaS targets monthly churn of 3-5% at SMB, below 1% at enterprise.
The most effective ways to reduce churn are strengthening onboarding, tracking in-product activation metrics, running a proactive customer success motion and using predictive models like churn risk scoring to catch at-risk accounts early.
Monthly to annual churn: why not ×12?
Churn compounds because the customer base shrinks each month: Annual churn = 1 − (1 − monthly churn)^12. A 5% monthly churn is about 46% annually, not 60%. Average customer lifetime is roughly 1 / monthly churn — 20 months at 5%.
Customer churn vs revenue churn
Gross revenue churn = (Cancelled + Contraction MRR) / Starting MRR. Net revenue churn also subtracts expansion MRR. If net revenue churn is negative, growth from existing customers outweighs losses — the same as NRR above 100%.