Two essential SaaS metrics that measure the same reality from opposite angles. Learn how they relate, how to calculate each, and which to optimize for.
Churn rate measures the percentage of customers or revenue lost in a given period. It is a risk and loss metric — high churn signals that your product is not delivering enough value to retain customers over time.
Lower is always better. Good monthly churn is under 2%. Annual churn under 5-7% for SMB SaaS.
Retention rate measures the percentage of customers or revenue kept over a period. It is a health and sustainability metric — high retention means customers find ongoing value in your product.
Higher is always better. Good monthly retention is above 98%. Annual retention above 93-95%.
Churn rate and retention rate are mathematical complements that always sum to 100%. They describe the same business reality from two different vantage points.
Retention Rate = 100% - Churn RateChurn Rate = 100% - Retention RateExample: 3% monthly churn = 97% monthly retention. 85% annual retention = 15% annual churn.
Churn Rate = (Customers Lost in Period / Customers at Start of Period) x 100Example: Started month with 1,000 customers, lost 25. Churn Rate = (25 / 1,000) x 100 = 2.5%
Retention Rate = ((Customers at End - New Customers) / Customers at Start) x 100Example: 1,000 start, 1,050 end, 75 new customers. Retained = 1,050 - 75 = 975. Retention = (975 / 1,000) x 100 = 97.5%
Revenue Churn = (MRR Lost to Cancellations + Downgrades) / MRR at Start of PeriodExample: $50,000 MRR start, $2,000 in cancellations, $500 in downgrades. Revenue Churn = ($2,500 / $50,000) = 5%
NRR = (MRR Start + Expansion MRR - Churned MRR - Contraction MRR) / MRR Start x 100NRR above 100% means existing customers are growing your revenue — a hallmark of best-in-class SaaS.
| Criteria | Churn Rate | Retention Rate |
|---|---|---|
| What It Measures | Percentage of customers or revenue lost | Percentage of customers or revenue kept |
| Relationship | Churn = 100% - Retention | Retention = 100% - Churn |
| Direction | Lower is better | Higher is better |
| Good Monthly Rate (SMB SaaS) | Under 2% monthly | Above 98% monthly |
| Good Annual Rate (SMB SaaS) | Under 5-7% annually | Above 93-95% annually |
| Types | Customer churn, revenue churn, voluntary vs involuntary | Customer retention, net revenue retention (NRR) |
| Can Exceed 100%? | No (0-100% range) | Yes, for NRR (expansion drives this) |
| LTV Impact | LTV = ARPA / Churn Rate (inverse relationship) | Higher retention directly extends LTV |
| Primary Action | Identify and prevent cancellations | Deliver ongoing value and expand accounts |
Logo / Customer Churn
Percentage of customers (accounts) that cancelled. The simplest measure of retention health but ignores the revenue size of those customers.
Gross Revenue Churn
Percentage of MRR lost to cancellations and downgrades. More meaningful than logo churn because it weights by revenue impact.
Net Revenue Retention (NRR)
Revenue retained including expansion. NRR above 100% means your existing customer base grows even with some churn. The most important metric for mature SaaS.
Involuntary Churn
Churn caused by payment failures rather than a deliberate decision to cancel. Typically 20-40% of total churn. Recoverable with dunning and retry logic.
Including new customer acquisitions in the churn denominator
Churn should be calculated against customers at the start of the period. Customers acquired mid-period who cancel immediately should not distort the base churn calculation.
Conflating customer churn with revenue churn
In a tiered pricing model, 10% customer churn from the lowest tier may represent only 3% revenue churn. Always report both and explain which you are referencing.
Using monthly churn to estimate annual churn by simple multiplication
Annual churn is not simply monthly churn x 12. A 2% monthly churn compounds to approximately 21% annual churn, not 24%. Use the compound retention formula: Annual Churn = 1 - (1 - Monthly Churn)^12.
Ignoring involuntary churn as a separate category
Failed payments account for a significant portion of churn and are highly recoverable. Treating them the same as deliberate cancellations leads to incorrect diagnoses and wasted recovery efforts.
Use our free calculators to measure churn rate, retention rate, and analyze cohort retention curves with detailed breakdowns by customer segment.
Churn rate and retention rate are two sides of the same coin: they always add up to 100%. If your monthly customer churn rate is 3%, your monthly customer retention rate is 97%. If you retained 85% of customers over a year, your annual churn rate is 15%. They measure the same business reality from opposite perspectives. Churn focuses on what you lost, retention focuses on what you kept. Teams that naturally think about growth tend to prefer retention rate framing, while risk-management conversations often use churn rate.
For monthly customer churn, under 2% is generally excellent, 2-5% is acceptable for most SaaS businesses, and above 5% monthly indicates a serious retention problem. Annual churn benchmarks are typically 5-7% for SMB-focused SaaS and 1-2% for enterprise-focused products. However, these benchmarks vary by business model, price point, and customer segment. Early-stage companies may accept higher churn while iterating toward product-market fit, while mature businesses should target single-digit annual churn as a baseline.
Customer churn (or logo churn) measures the percentage of customers who cancelled their subscriptions in a period. Revenue churn measures the percentage of recurring revenue lost due to cancellations and downgrades. The two can differ significantly. If large, high-paying customers churn at a lower rate than small, low-paying customers, your revenue churn will be lower than your customer churn. Conversely, if a few large customers cancel, revenue churn can spike even with low logo churn. Revenue churn is generally the more important metric for business health.
Net Revenue Retention (NRR) measures how much revenue you retain from existing customers including expansion revenue from upsells and cross-sells, minus revenue lost to churn and contraction. Unlike standard retention rate which can only reach 100%, NRR can exceed 100% — meaning your existing customer base is growing even without acquiring new customers. An NRR above 100% is the hallmark of a best-in-class SaaS business. Top companies like Snowflake and Twilio have historically reported NRR of 120-150%.