Definition
Churn rate is the percentage of customers who stop paying in a given period, usually a month. It can also be measured in revenue, which is often more useful.
Formulas
- Customer churn = customers lost during the month ÷ customers at the start of the month
- Revenue churn = MRR lost to cancellations and downgrades ÷ MRR at the start of the month
Example
You start the month with 200 customers and $20,000 MRR. Six customers cancel, taking $500 of MRR.
- Customer churn: 6 ÷ 200 = 3%
- Revenue churn: $500 ÷ $20,000 = 2.5%
Why small numbers matter
Churn compounds. At 3% a month you keep about 69% of customers after a year. At 5% a month, about 54%. It also caps growth: you stop growing when the customers you lose each month equal the ones you add.
What's good?
It depends on who you sell to. Commonly cited ranges are roughly 3–7% monthly for small-business and consumer products, and under 1–2% for mid-market and enterprise. See what is a good churn rate for benchmarks and fixes.
Common mistakes
- Counting new customers who joined during the month in the denominator.
- Ignoring downgrades, which are revenue churn even when the customer stays.
- Reading too much into one month when you have few customers.