Churn Rate

The percentage of customers, or revenue, you lose in a given period.

When to use this

You have a recurring-revenue product and you want to know how fast the bucket is leaking. Churn is the single biggest input to LTV, CAC payback, and any growth model. Track it monthly for SMB and B2C, quarterly or annually for enterprise.

When NOT to use this

One-time-purchase businesses. Churn isn't a meaningful concept; use repeat-purchase rate instead. Products with under 3 months of customer data. Your first cohort hasn't had time to churn yet, so the number lies.

Inputs

Customers at start of period: logo count on day 1.
Customers lost during period: cancellations plus downgrades to free, if you have a freemium tier.
MRR at start of period: total recurring revenue on day 1.
MRR lost during period: cancellations plus contraction.
Expansion MRR (for net): upgrades and seat additions from existing customers.

The math

Two formulas, both matter.

Customer churn = customers lost / customers at start of period
Revenue churn (gross) = MRR lost / MRR at start of period
Revenue churn (net)   = (MRR lost - expansion MRR) / MRR at start of period

Customer churn tells you about retention pressure. Revenue churn tells you about money pressure. They diverge sharply when high-ACV customers churn at different rates than low-ACV ones.

A worked example

A B2B SaaS starts Q1 with 400 customers and $200k MRR. Over the quarter they lose 12 customers totaling $8k MRR. They get $3k in expansion from existing accounts.

Customer churn        = 12 / 400          = 3%
Gross revenue churn   = $8k / $200k       = 4%
Net revenue churn     = ($8k - $3k) / $200k = 2.5%

The 2.5% net looks fine. The 4% gross says you're losing customers faster than you're losing money, which means the churn is concentrated in your smaller accounts. That's a different problem than losing whales, and it needs a different fix.

How pmtoolkit does it differently

We show gross and net revenue churn side by side. Net hides churn behind expansion, and most dashboards only surface net. When gross is high and net is low, expansion is masking a leaky bucket. We flag that gap so you stop reporting a healthy 2.5% to your board when 4% of your revenue base is walking out the door.

Common mistakes

Reporting only net. Net under 0% (negative churn) is a real win, but only if gross isn't double-digit underneath.
Using a one-month snapshot for long-sales-cycle products. A 1% monthly number on a 60-day sales cycle isn't reliable. Annualize and compare across at least 2 quarters.
Treating downgrades as not-churn. A customer moving from $500/mo to $50/mo lost you $450 of MRR. That's contraction. Bucket it as churn or your net is a lie.
Comparing B2C and B2B benchmarks without adjusting for ACV. A 5% B2C monthly churn rate is fine. A 5% B2B monthly churn rate at $20k ACV is a five-alarm fire.

Benchmarks (illustrative)

Segment	Healthy monthly churn
B2B SaaS < $10k ACV	5-7%
B2B SaaS $10-50k ACV	2-4%
B2B SaaS > $50k ACV	under 1%
B2C subscription	5-10%