Churn rate looks simple to calculate, but the details matter. Measure it wrong, and you'll miss critical problems in your business.
This guide walks you through calculating both customer and revenue churn, the pitfalls to avoid, and how to track churn effectively.
The Formulas
Customer Churn Rate:
Customer Churn Rate = (Customers Lost ÷ Customers at Start of Period) × 100
Revenue Churn Rate:
Revenue Churn Rate = (Revenue Lost - Revenue Gained from Upgrades) ÷ Starting Revenue × 100
Or for MRR churn:
MRR Churn Rate = (MRR Lost - MRR Gained from Expansion) ÷ Starting MRR × 100
Step-by-Step: Customer Churn
Step 1: Define your period Usually monthly or annually. For early-stage companies, monthly is better because churn patterns become visible faster.
Step 2: Count customers at the start of the period Use your exact count on the first day of the month/year. Don't estimate.
Step 3: Count customers who churned during the period Only count those who cancelled or failed to renew. Do NOT count downgrades here (those go in revenue churn).
Step 4: Apply the formula
Customer Churn Rate = Customers Churned ÷ Starting Customers × 100
Example: Monthly Customer Churn
Scenario: SaaS company tracking January churn
- January 1 starting customers: 500
- Customers who cancelled during January: 12
- Customers who downgraded: 3
- New customers added in January: 25
Calculation:
Customer Churn Rate = 12 ÷ 500 × 100 = 2.4%
Note: Do NOT include the 25 new customers or the 3 who downgraded in the churn formula. The formula uses only lost customers ÷ starting customers.
Annualized churn: If 2.4% monthly churn continues:
Annual Churn = (1 - 0.976^12) × 100 = ~26% annually
Step-by-Step: Revenue Churn
Revenue churn is more complex because you account for both losses and gains:
Step 1: Record MRR at start of month Exact recurring revenue on day 1. If your start is $100,000 MRR, use that.
Step 2: Track MRR lost to cancellations
- Customer A ($5,000/month) cancels: -$5,000
- Customer B ($500/month) cancels: -$500
- Total MRR Lost = $5,500
Step 3: Track MRR gained from upgrades/expansion
- Customer C upgrades from $1,000 to $2,500: +$1,500
- Customer D adds seats: +$300
- Total Expansion MRR = $1,800
Step 4: Apply the formula
Revenue Churn Rate = (MRR Lost - Expansion MRR) ÷ Starting MRR × 100
Revenue Churn Rate = ($5,500 - $1,800) ÷ $100,000 × 100 = 3.7%
Example: Monthly Revenue Churn
Scenario: SaaS company with $100,000 starting MRR
| Customer | Reason | Amount | |----------|--------|--------| | A | Cancellation | -$5,000 | | B | Cancellation | -$500 | | C | Downgrade | -$200 | | D | Upgrade | +$1,500 | | E | Expansion (new seats) | +$300 |
Calculation:
- MRR Lost: $5,500 (from cancellations)
- Downgrade: $200 (technically lost revenue, include in losses)
- Expansion: $1,500 + $300 = $1,800
Revenue Churn = ($5,700 - $1,800) ÷ $100,000 × 100 = 3.9%
Interpretation:
- Customer churn might be 2% (lost 2 customers)
- Revenue churn is 3.9% (lost more revenue than customer count suggests)
- This means high-value customers are churning disproportionately
Segmented Churn: Breaking Down by Segment
Track churn separately for different customer segments:
By Customer Tier:
- Startup plan: 5% monthly churn
- Growth plan: 1.5% monthly churn
- Enterprise plan: 0.2% monthly churn
This reveals that your Startup tier has a problem.
By Customer Cohort (when they joined):
- 2024 customers: 8% monthly churn (newer, less sticky)
- 2023 customers: 3% monthly churn (more established)
- 2022 customers: 1% monthly churn (most loyal)
This shows onboarding/first-month experience issues.
By Industry/Geography:
- Financial services: 2% monthly churn
- E-commerce: 5% monthly churn
- Healthcare: 1.5% monthly churn
This identifies which verticals or regions are problems.
Churn vs. Retention Rate
These are inverses:
Retention Rate = 100% - Churn Rate
If your monthly churn is 3%, your retention rate is 97%.
Use retention rate when talking to investors (more positive framing), and churn rate internally (drives urgency to fix problems).
Common Mistakes
Mistake 1: Including new customers in the calculation
WRONG: Churn = 12 lost ÷ (500 starting + 25 new) × 100 = 2.1%
RIGHT: Churn = 12 lost ÷ 500 starting × 100 = 2.4%
Never include new customer acquisitions in the denominator; you're measuring how many of the customers you started with stayed.
Mistake 2: Miscounting free tier or trial customers Free users shouldn't count as "churned" because they weren't customers. Only count paid, active subscriptions.
Mistake 3: Using inconsistent periods Q1 churn calculated from different dates than Q2 churn will mislead. Use consistent dates (1st of month, not rolling 30 days).
Mistake 4: Confusing gross and net churn Gross churn = what you lose. Net churn = what you lose minus expansion. Net churn > 100% means you're losing more than you're replacing (declining business).
Mistake 5: Not accounting for failed payments Customers who fail to pay are different from voluntary cancellations. Track separately: voluntary churn and involuntary churn.
Tools and Implementation
Spreadsheet approach (for <1000 customers):
- Month column, Starting Customers, Churned, New, Ending, Churn Rate
- Formula:
=Churned ÷ Starting × 100
Analytics tools (for >1000 customers):
- Intercom, Amplitude, Mixpanel track churn automatically
- Stripe/payment platform exports churn by cohort
- Custom SQL queries in your data warehouse
CRM/subscription platform exports:
- Stripe, Chargebee, Zuora all provide churn reports
- Export monthly and compare trends
What to Do With Your Churn Numbers
Once you've calculated churn:
- Segment it — Find where problems exist
- Compare to benchmark — Is 3% monthly churn good or bad? Depends on your industry
- Trend analysis — Is churn increasing or decreasing? Month-over-month?
- Interview churned customers — "Why did you leave?" is worth more than the number itself
- Identify fixes — Poor onboarding? Missing features? Pricing too high?
- Measure impact — Implement fixes, then recalculate churn next month
Related Articles
- What Is Churn Rate — Full overview and strategy
- How to Calculate Retention Rate — Inverse of churn
- How to Calculate Customer Lifetime Value — CLV depends on churn