What is churn?
Churn is the rate at which a business is losing customers and/or revenue through subscription cancellations.
- Customer churn — measures the rate at which customers are leaving your SaaS business.
- Revenue churn — measures the rate at which revenue is leaving your SaaS business.
For a guide to revenue churn (net and gross MRR churn), go here. Keep reading to dig deeper into customer churn.
Customer churn rate, also known as logo churn rate, charts the loss of subscribers and is a key indicator of the health of your SaaS business.
How to calculate customer churn rate
To calculate your customer churn rate, divide the number of customers who churned in a period by the number of customers at the start of that period.
It’s important to make sure you’re only measuring paying customers in this formula – free trial customers should be excluded, as well as those on a free plan (if you use a freemium model).
Keep in mind that some customers may have joined and churned or churned and reactivated in that same period. Make sure they don't skew your calculation.
Example
At the start of the month, you have 100 customers. During the month, 12 customers churn. Of those churned customers, one reactivated, and one had joined during the period. Your customer churn rate is 10%: (12 − 2) ÷ 100.
Why look at both customer and revenue churn?
Customer churn and revenue churn can differ significantly depending on how revenue is distributed across your customer base. This is why it’s essential to examine both metrics to get a comprehensive understanding of your SaaS business.
Imagine you’re running a SaaS business with three customers: A, B, & C. Their monthly recurring revenue (MRR) is $20, $30 & $50 respectively (for a total MRR of $100).
Now, one day, C decides to cancel their subscription and churn.
If you calculate your customer churn rate for the month, it comes out to be 33% (as 1 of 3 customers churned)But, if you calculate your revenue churn rate, it comes out to be 50%.
This example illustrates how focusing solely on customer churn can overlook critical revenue impacts, particularly when a small number of high-value customers account for a significant portion of your revenue.
What is a good monthly customer churn rate?
Industry benchmarks provide a framework for businesses to compare their churn rates to those of their competitors. Over the past two years, we’ve shared insights into the SaaS industry through the SaaS Retention Report, SaaS Growth Report and SaaS Benchmarks Report. ChartMogul's research and analysis into the global private SaaS market is based on aggregated and anonymised revenue data from over 2,500 SaaS businesses.
Churn benchmarks by ARR range
The monthly customer churn rate of a median company is higher in the initial stages of the business. A median early-stage SaaS company <$300k ARR has a customer churn rate of 6.5%.
As companies find product-market fit and hone into their customer category, churn reduces. A median company with ARR between $1-3M has a 3.7% customer churn rate.
Meanwhile, a median company over $8M ARR has a customer churn rate of 3.1%.
| New MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 0.2% | -0.4% | -1.2% | -0.8% | -0.8% | -1.1% |
| Good / Top quartile | 2.4% | 0.8% | 0.3% | 0.2% | -0.1% | -0.4% |
| Ok / Median | 6.2% | 3.1% | 2.3% | 1.6% | 1.4% | 1.8% |
| Can be better / Bottom quartile | 12.3% | 6.7% | 5.5% | 4.1% | 3.1% | 5.4% |
| Gross MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 2.5% | 2.0% | 1.6% | 2.0% | 1.6% | 1.5% |
| Good / Top quartile | 4.8% | 3.6% | 3.0% | 3.3% | 2.8% | 2.2% |
| Ok / Median | 4.1% | 5.7% | 5.3% | 5.3% | 4.0% | 5.8% |
| Can be better / Bottom quartile | 16.5% | 10.5% | 9.0% | 9.5% | 8.0% | 11.1% |
| Customer Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 1.5% | 1.4% | 1.3% | 1.3% | 1.5% | 1.3% |
| Good / Top quartile | 3.2% | 2.5% | 2.2% | 2.3% | 2.0% | 1.7% |
| Ok / Median | 6.5% | 4.1% | 3.7% | 3.8% | 3.1% | 4.1% |
| Can be better / Bottom quartile | 11.6% | 7.3% | 6.9% | 6.5% | 5.6% | 7.4% |
Churn benchmarks by ARPA range
The revenue churn rate for a median company varies by the ARPA band they are in. For companies with lower ARPA, the rate is higher while for companies with higher ARPA it is lower.
For companies with ARPA per month in the range of <$25, the median customer churn rate is 6.1%. It decreases to 2.2% as your ARPA per month increases to >$500.
| New MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 1.3% | -0.3% | -1.2% | -1.2% | -1.9% | -2.6% |
| Good / Top quartile | 3.2% | 0.8% | 0.1% | 0.4% | -0.4% | -0.8% |
| Ok / Median | 6.0% | 2.8% | 1.3% | 0.7% | 0.4% | 0.1% |
| Can be better / Bottom quartile | 10.2% | 5.7% | 3.4% | 2.5% | 1.4% | 1.4% |
| Gross MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 3.3% | 2.5% | 2.0% | 1.5% | 0.9% | 0.7% |
| Good / Top quartile | 5.4% | 3.7% | 3.0% | 2.2% | 1.6% | 1.1% |
| Ok / Median | 8.2% | 5.7% | 4.8% | 3.6% | 2.4% | 2.7% |
| Can be better / Bottom quartile | 13.3% | 10.3% | 8.7% | 5.7% | 5.3% | 6.0% |
| Customer Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 2.5% | 1.7% | 1.4% | 1.0% | 0.9% | 0.7% |
| Good / Top quartile | 4.0% | 2.8% | 1.9% | 1.9% | 1.4% | 1.1% |
| Ok / Median | 6.1% | 4.2% | 3.1% | 3.0% | 2.2% | 1.8% |
| Can be better / Bottom quartile | 9.3% | 7.4% | 5.8% | 4.7% | 3.6% | 3.5% |
Customer churn rate by NRR range
Net Revenue Retention (NRR), also known as net dollar retention (NDR), measures the percentage of revenue retained over a period of time, after gains from expansion and offset by contraction and churn.
Companies with NRR below 60% have double the churn.
Companies in the low NRR range have a median 7% customer churn, double the rate of those with ≥100% NRR. But the top quartile of companies in the same NRR bucket grow faster. These companies rely a lot on new business, and when new business is high, in general, so is churn.
Copanies with NRR under 60% experience twice the churn
- 75th percentile
- Median
- 25th percentile
| Net revenue retention range | 75th percentile | Median | 25th percentile |
|---|---|---|---|
| Low (<60%) | 10.5% | 7.3% | 5.5% |
| Moderate (60-80%) | 6.4% | 4.3% | 3.1% |
| Good (80-100%) | 3.5% | 2.3% | 1.5% |
| Exceptional (≥100%) | 3.2% | 1.7% | 0.9% |
The relationship between growth rate and churn.
Rapid growth can lead to higher churn rates, especially in early-stage B2C companies. This happens because many customers sign up during periods of virality but fail to stay beyond the first few months. The likelihood of churn is particularly high during these initial months, as customers evaluate the product and decide whether it meets their needs.
Higher growth rate sometimes brings a higher churn rate
- 75th percentile
- Median
- 25th percentile
| Annual growth rate | 75th percentile | Median | 25th percentile |
|---|---|---|---|
| <0% | 7.9% | 5.2% | 3.3% |
| 0-25% | 6.1% | 3.5% | 2.2% |
| 25-50% | 5.7% | 3.4% | 1.8% |
| 50-75% | 5.4% | 3.1% | 1.6% |
| 75-100% | 5.2% | 3.4% | 2.4% |
| >100% | 12.3% | 5.3% | 2.7% |
Types of churn
Although churn appears as a single (customer or revenue) number, there are several different types, depending on the overall reason why a customer is canceling their subscription.
Some churn is inevitable, but many customers leave because they can’t solve the pain they have with your product. That’s why it is important to understand and classify churn correctly — it allows you to understand where your product falls short and what you need to do to improve it.
The main categories of churn are:
Proactive churn (aka voluntary churn)
This covers all cases in which a customer chooses to cancel their account deliberately.
A sub-set of this is the so-called happy churn — those are the people who cancel because they don’t need your product anymore. Typically, that happens when they have fulfilled the job they hired your product for. Happy churn is common in some niches — for example, for seasonal products or those that are used to perform a one-time task (like a database migration). In short, voluntary (aka proactive) churn comes from people who canceled.
Passive churn (aka delinquent churn)
This type of churn occurs when a customer forgets to update their credit card details. Passive churn is a lot more common than most people expect. We’ve seen cases where it accounts for as much as a third of all churn and where companies succeed in recovering a large proportion of that through simple dunning campaigns.
Delinquent churn should be addressed before it gets out of hand. Reactivation campaigns are your best friend when it comes to dealing with this type of churn. Reactivation MRR could be a powerful growth lever for your organization.
Churn that’s not really churn
The 30-day moneyback guarantee and other similar tactics have become a popular way to acquire customers and allow them to experience the value of a product. But that doesn’t necessarily mean those customers should be included in your churn calculations.
Sam Jacobs, Founder and CEO at Pavilion In the world of Growth at Any Cost (GAAC), the #1 KPI everybody obsessed over was new business growth. But in 2024, the KPI that's going to enable your long-term growth is retention. It's not your ability to attract a new customer that matters most, but keeping them over a sustained period of time.
Negative churn
Unlike the churn discussed in the previous section, negative churn is the only type that can be considered positive. It occurs when the amount of new revenue added from the existing customer base (through expansions and reactivations) during a specific period is larger than the amount lost from cancellations and contractions during that same period.
In other words, negative churn occurs when your net revenue churn rate is a negative number. At this point, it means that even without adding new customers, your business would continue to grow.
Negative churn is the Holy Grail of SaaS growth, signifying a strong product and a scalable business model.
Why do customers churn?
Customers leave you primarily because they don’t see value in your product. The underlying reason as to why they don’t see the value could be threefold:
They haven’t been onboarded well
Customers fail to reach the 'Aha' moment where they experience the true value of your product. This often occurs when the product is overly complex or when its purpose—what job it accomplishes—is unclear. Support documentation may also be difficult to navigate or understand, leaving customers frustrated as they search for answers. When trying a new product, customers often lack time and patience.
Price doesn’t correlate with value
Even if some customers recognize the value of your product, they may find greater value at the same price from a competitor. Once they make the switch, you lose them as subscribers.
Wrong customer segment
Maybe they weren’t good fit customers in first place. In that case, your marketing strategy may need to change to attract customers that are within your ICP (Ideal Customer Profile). You probably also need to fire some of your bad fit customers to focus all your energy on retaining your good fit customers.
Daria Danilina, Co-founder at Salesroom Not every dollar is created equal, especially in the venture world. A retained dollar is worth a lot more than a newly acquired dollar that has yet to renew.
How to stop churn
A high customer churn rate can negatively impact future growth, so you should take it seriously. Some churn is inevitable. But that doesn’t mean you shouldn’t try to save every customer and every dollar of revenue. Here are a few ideas on how to stop your "leaky bucket" problem.
Understand what caused churn
Always monitor customer churn
The most meaningful insights often aren’t visible at first glance. Use analytics tools to help you uncover insights that inform better decisions.
Analyze usage data to identify disengaged users.
Segmentation helps you to identify which pricing plans are most effective, the customer profiles that are more likely to convert, and the attributes of your most loyal subscribers.
At which point in the lifespan of a subscription is churn at its highest? Does churn stabilize after some period of time? These questions can be answered with cohort analysis. A cohort analysis visualises the way your churn rate evolves over the lifetime of a group (cohort) of customers who converted in the same time period (usually a specific month).
If your churn is very high in the first or second month, your customer clearly didn’t get to the “aha” moment that shows the value of your product and it’s time to step in with an action plan. Focus on customer success efforts where churn is highest and see if it had an impact and reduced the area of high churn based on later cohorts.
Conduct exit interviews or surveys.
Find out why customers leave by asking questions and looking at their usage. Actively soliciting customer feedback at key moments in the customer journey can also help understand audience needs and improve product offerings.
Improve customer onboarding
Improving customer onboarding means helping new users get up and running smoothly while showing them the value of your product right away. Simplify the process so it’s easy for them to understand and use your features. Provide clear tutorials, training sessions, or even one-on-one onboarding specialists to guide them. The goal is to make their first experience seamless and positive, setting the foundation for long-term success and retention.
Invest in customer success
Investing in customer success means building strong relationships by staying one step ahead of your customers’ needs. Proactively check in with them to understand their goals and challenges, and tackle any issues before they become reasons to leave. By being supportive and solution-focused, you can help customers see consistent value, increasing their loyalty and long-term satisfaction.
Predict churn
Predicting churn helps you stay ahead of customer losses by spotting warning signs early. By analyzing behavior and patterns, you can identify which customers might leave and take action to keep them engaged. This proactive approach helps you address their needs before they decide to move on, improving retention and boosting loyalty.
Nick Franklin, Founder & CEO at ChartMogul In reality, for every B2B SaaS business retention becomes the biggest growth driver in a way. So it is worth focussing on retention really from day one, perhaps even before you actually have any meaningful retention data to look at.
Enhance product features
Enhancing product features is about keeping your product fresh and effective by making regular improvements. Continuously refining and updating your product ensures that it stays valuable and meets your customers’ needs as they grow. It’s not just about adding features—it’s about making the product better overall.
Upsell and cross-sell
Upselling and cross-selling are great ways to help customers get even more value from your product. By recommending upgrades or complementary features that fit their needs, you can deepen their engagement and boost satisfaction. It’s about offering the right solutions at the right time to create a win-win for both your business and your customers.
Improve pricing and value alignment
Make sure customers feel they’re getting their money’s worth. Your pricing should reflect the true value of your product, balancing affordability with the benefits it delivers. When customers see the clear connection between what they pay and what they gain, they’re more likely to stick around.