Churn Rate

Definition

Churn Rate is a critical SaaS metric that quantifies the proportion of customers or revenue lost during a defined period, such as a month or a year. It helps sales leaders, CROs, and RevOps teams understand customer retention challenges and revenue leakage by tracking either logo churn (number of customers lost) or revenue churn (value of subscriptions lost), either separately or together.

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Logo churn refers to the percentage of customers who cancel or do not renew, while revenue churn (also called MRR or ARR churn) measures the dollar amount of recurring revenue lost due to cancellations or downgrades. Both are essential for diagnosing business health and forecasting future growth.

How to Calculate

There are two primary versions of churn rate commonly used in SaaS:

1. Customer (Logo) Churn Rate:
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Customer Churn Rate = Number of Lost Customers in Period ÷ Number of Customers at Start of Period × 100%

2. Revenue Churn Rate:
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Revenue Churn Rate = Recurring Revenue Lost from Churned and Downgraded Customers ÷ Recurring Revenue at Start of Period × 100%

Step-by-step Revenue Churn Calculation

1. Total all recurring revenue contracts canceled or downgraded during the period.
2. Divide that loss by the total recurring revenue at the beginning of the period.
3. Convert to a percentage to express the churn rate.

Example

• Starting MRR: $100,000
• Lost revenue in month: $5,000
  
  

Revenue churn rate = $5,000 ÷ $100,000 = 5%.

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A 5% monthly revenue churn rate equates roughly to a 46% annual churn rate, emphasizing the importance of controlling churn.

Why Churn Rate Matters

Understanding churn is vital to sustaining growth in B2B SaaS. High churn rates increase the burden on customer acquisition; more new customers must be acquired just to maintain revenue levels. CROs use churn rate to identify product-market fit issues, customer success gaps, or pricing misalignments. RevOps teams closely monitor churn as a key leading indicator of customer health and pipeline risk.

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A low churn rate (below 5% monthly or sub-20% annually for enterprise SaaS) strongly correlates with higher customer lifetime value (LTV) and improved valuation multiples. High churn can stall growth and exhaust sales resources, demanding urgent intervention.

Industry Benchmarks

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Churn rates vary significantly by segment and pricing model, but best-in-class enterprise SaaS tends to have low single-digit monthly revenue churn.

Real-World Examples

• A mid-market SaaS provider discovers its churn spikes at renewal time due to pricing complaints; by adjusting contract terms and deepening customer education, they reduced monthly revenue churn by 1.5 points.
  
  
• An enterprise software vendor tracks churn by customer success tier and increases high-touch coverage for accounts with higher churn risk, yielding a 10% reduction in annual churn.
  
  
• RevOps maps churn causation to onboarding problems in an SMB product, prompting product and CS teams to improve first-30-day experiences.

Common Mistakes

• Mixing logo churn with revenue churn metrics, leading to confused prioritization.
• Ignoring contraction (downgrades) in revenue churn calculations.
• Including non-recurring revenue in churn, distorting the metric.
• Using inconsistent time periods for numerator and denominator (e.g., lost customers over month vs. total customers at different points).
• Overlooking cohort variation (new vs. established customers) masks root causes.
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The Fix: Define churn clearly in your RevOps playbook, distinguish between customer and revenue churn, automate through integrated CRM and billing data, and segment churn by cohorts and cause to enable targeted prevention strategies.

FAQs

What is considered a good churn rate for B2B SaaS?

Typically, monthly revenue churn below 3% and annual churn below 15% are good benchmarks; enterprise SaaS often targets even lower.

How does churn affect SaaS growth?

High churn means more spend on acquiring customers just to maintain revenue; low churn enables sustainable growth and better margins.

Why differentiate between logo churn and revenue churn?

Logo churn counts customers lost, while revenue churn reflects value lost; losing a few large customers impacts revenue far more than many small ones.

Can churn rates be negative?

No. Churn itself cannot be negative. However, net churn (considering expansion revenue) can be negative, indicating net growth.

How can we reduce churn?

Improve onboarding, customer success programs, product fit, pricing alignment, and proactive account management.

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‍Last Updated: December 8, 2025
‍Reviewed by: Ben Hale