Step-by-Step Guide

How to Calculate Churn Rate

Five steps to calculate customer and revenue churn accurately. Formulas, gross vs net churn, and actionable benchmarks for SaaS product managers.

1
Choose Your Measurement Period

Pick the right measurement window before you start. Monthly churn is the standard for SaaS because it gives you high-frequency signal and matches subscription billing cycles.

›Monthly churn provides frequent updates. Review longer periods too when customer counts are small or renewals are concentrated.
›Quarterly churn is appropriate for businesses with annual contracts or longer sales cycles where monthly fluctuations are too noisy to be meaningful.
›Annual churn gives a longer-term view. It can help when monthly counts fluctuate, but keep the measurement window visible.
›For annual-contract businesses, calculate churn at renewal time. The moment a customer decides not to renew is when churn actually occurs economically.
›Once you choose a period, stick with it. Switching between monthly and annual mid-analysis makes trend data impossible to interpret.

Formula

Measurement Period: Monthly (recommended) | Quarterly | Annual

Pro tip: If you have both monthly and annual subscribers, calculate churn separately for each cohort before blending. A 5% monthly churn rate for monthly subscribers and 10% annual churn for annual subscribers represent very different retention situations and should be tracked independently.

2
Count Customers at the Start of the Period

Your starting customer count is the denominator. A common mistake is using a mid-period snapshot instead of the clean opening count.

›Use your customer count at the very beginning of the measurement period: midnight on day one, before any new customers are added.
›Count active paying customers. Define how you handle paused or overdue accounts; measure free-user retention separately.
›For subscription businesses, pull from your billing system (Stripe, Chargebee, Recurly) rather than CRM data, which can lag.
›Document your definition of "active". Does a customer 90 days past due count as active? A written policy prevents inconsistent counts month over month.
›Example: On February 1, you have 800 active paying customers. That is your starting count for the February churn calculation.

Formula

Starting Customers = Active Paying Customers at Period Start

Pro tip: Export and archive your customer count at the start of each period in a spreadsheet or dashboard. Billing systems often make it difficult to query historical snapshots retroactively. A simple monthly log prevents having to reverse-engineer counts later.

3
Count Customers Lost During the Period

Counting churned customers needs a clear taxonomy. Not every departure looks the same. Conflating categories produces misleading metrics.

›Voluntary churn (active cancellations): Customers who explicitly cancelled their subscription. This is the most actionable churn type. Exit surveys and win-back campaigns directly target this group.
›Involuntary churn (failed payments): Customers lost to payment failures or billing issues. Track your own share and test payment retries or card-update reminders.
›Downgrades: A customer moving to a cheaper paid plan remains a customer. Record the lost revenue as contraction; count customer churn when the paid relationship ends.
›Non-renewals: Annual customers who let their contract expire. Count in the period when the contract end date falls.
›Example: In February, 32 customers cancelled (voluntary) and 8 were lost to failed payments (involuntary). Total lost = 40 customers.

Formula

Customers Lost = Voluntary Cancellations + Involuntary Churn + Non-Renewals

Pro tip: Tag churn events with the reason when known. Review recurring themes, and distinguish customer-reported reasons from your team’s inference.

4
Calculate Customer Churn Rate

With your starting count and churned customers defined, apply the core formula. This percentage tells you the rate at which your customer base is contracting before accounting for new customer additions.

›Divide customers lost by customers at the start of the period.
›Multiply by 100 to express as a percentage.
›Example: 40 lost / 800 starting = 0.05 = 5% monthly churn rate.
›Compare churn with a source that matches your customer segment, billing model, and period. Annual retention benchmarks cannot be read as monthly churn rates.
›For context, see the linked SaaS benchmarks guide for published annual customer-retention comparisons by monthly ARPA.
›Under a constant-churn model, average lifetime in months is 1 / monthly churn as a decimal. At 5% monthly churn, the estimate is 20 months.

Formula

Customer Churn Rate = (Customers Lost / Customers at Start) x 100%

Pro tip: Keep customer churn separate from revenue churn. Expansion can offset lost revenue in net revenue churn, but it does not offset a lost customer in the customer-churn count.

5
Calculate Revenue Churn Separately

Customer churn counts heads. Revenue churn counts dollars. These two metrics diverge when customers have different revenue profiles. Revenue churn is usually the more important business metric.

›Identify the Monthly Recurring Revenue (MRR) at the start of the period.
›Sum the MRR lost from cancellations, downgrades, and non-renewals during the period.
›Divide lost MRR by starting MRR and multiply by 100.
›Example: $80,000 starting MRR, $6,000 MRR lost to churn = 7.5% revenue churn rate.
›Revenue churn above customer churn can reflect larger-account losses or downgrades. Separate cancellations from contraction before diagnosing the cause.
›Revenue churn below customer churn can mean lost customers had lower-than-average revenue. Review the affected accounts before drawing conclusions about loyalty.
›NRR = (Starting MRR - Churn MRR - Contraction MRR + Expansion MRR) / Starting MRR x 100%. Above 100% means revenue from that starting cohort grew.

Formula

Revenue Churn Rate = (MRR Lost / MRR at Start) x 100%

Pro tip: Track customer and revenue churn together. Investigate changes and differences by segment; no fixed percentage-point gap diagnoses the cause.

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Frequently Asked Questions

What is a good churn rate for SaaS?

A useful benchmark matches your customer segment, billing model, period, and churn definition. The linked SaaS benchmarks guide includes ChartMogul annual customer-retention data by monthly ARPA. Assess churn alongside CAC, gross-profit LTV, and payback.

What is the difference between gross churn and net churn?

Gross revenue churn counts revenue lost from cancellations and downgrades. Net revenue churn subtracts expansion revenue from those losses and can be negative. Customer churn counts lost customers separately; a paid downgrade is not a lost customer.

What is the difference between voluntary and involuntary churn?

Voluntary churn occurs when customers choose to leave. Involuntary churn occurs when payment or billing failures end the subscription. Track the reasons in your own customer base; retries and reminders may recover some failed payments.

How does churn rate affect LTV?

In the constant-churn model, LTV = (ARPU x gross margin) / monthly customer churn. Holding other inputs constant, reducing churn from 4% to 3% raises LTV by 33%; reducing it from 4% to 2% doubles LTV. These are one- and two-percentage-point reductions. The formula alone does not tell you what achieving them will cost.

Should I calculate churn by customer count or by revenue?

Calculate both on a consistent schedule. Customer churn counts departures; revenue churn measures the revenue lost. NRR also includes expansion. An NRR of 120% means the starting customer cohort’s revenue grew 20% over the measured period.

Sources

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