How to calculate churn rate

The churn rate formula

Churn rate is the share of customers who leave over a period. The standard formula is:

Churn rate = customers lost during the period ÷ customers at the start of the period × 100

Both figures cover the same window. If you measure a month, you divide the customers lost in that month by the count you held on the first day of it, and you do not include anyone you acquired partway through in the starting number. The result is a percentage: 4% churn means 4 of every 100 customers you began with had gone by the end.

Churn has a mirror image. Retention rate is the share who stay, and the two are complements: if 4% churn, 96% remain. The retention formula nets out new customers so it is not skewed by growth: (customers at the end minus new customers acquired) ÷ customers at the start × 100. You can check the flip side of any churn figure with the retention rate calculator.

Customer churn vs revenue churn

Before you calculate anything, decide what you are counting: customers or money. They answer different questions, and quoting one when you mean the other is the most common way a churn number misleads.

• Customer churn counts logos: the share of customers who cancelled. It treats a 5-seat account and a 500-seat account the same. Use the formula above.
• Gross revenue churn counts money lost: the recurring revenue you lost from cancellations and downgrades over the period, divided by the recurring revenue you started with. It cannot go below zero, because it ignores any gains.
• Net revenue churn takes gross revenue churn and subtracts the expansion revenue (upgrades, seat growth, cross-sells) from your existing customers. When expansion outpaces losses, net revenue churn goes negative, which is the prized signal of negative churn or net revenue retention above 100%.

The gap between them matters. A business can lose 8% of its customers but only 2% of its revenue if the leavers were small accounts, or lose 2% of customers and 10% of revenue if a single large account walks. Decide which question you are answering, then keep using the same definition so the trend is comparable month to month.

A worked example

Say you started the month with 2,400 customers and 96 of them cancelled by the end of it.

96 ÷ 2,400 = 0.04, so churn rate = 4.0%.

Four percent of the customers you began with left this month. The same numbers give you retention for free: 2,400 minus 96 leaves 2,304 customers retained, which is 2,304 / 2,400 = 96.0% retention. Churn and retention always add to 100%, so once you have one you have the other. A 4.0% monthly churn rate sits inside the range most subscription businesses would treat as healthy, though whether it is good for your model is a separate question.

Turning monthly churn into an annual figure

Churn compounds, so you cannot multiply a monthly rate by twelve to get the annual one. Each month the loss applies to the customers who are still left, so it stacks. The honest conversion is to compound the retention rate: take (1 minus the monthly churn rate), raise it to the power of twelve, and the result is the share of a starting cohort still with you after a year.

Take 5% monthly churn. Monthly retention is 0.95, and 0.95 raised to the power of twelve is about 0.54. So a churn rate that looks like a rounding error each month means roughly 46% of customers gone over the year. The table shows the same headline rate read three ways.

This is why a churn number is meaningless without its period attached, and why mixing a monthly figure with an annual one in the same report quietly breaks every comparison.

What is a good churn rate?

There is no single good churn rate; it depends on your business model and the period you measure. A churn rate at or below roughly 5% per period is the common gut-check for a healthy subscription business, with lower always being better, but that is a convention to sanity-check against rather than a law. Enterprise SaaS runs far lower, while consumer apps with easy cancellation run higher and consider it normal.

Because the right benchmark shifts so much by model, the honest read is to compare yourself against businesses that sell the way you do. For the full picture of what counts as good and why, see what is a good churn rate, which breaks the benchmarks down by business model.

Common mistakes

• Dividing by the wrong base. Churn uses the customers at the start of the period, not the average or the end-of-period count. Including customers you acquired mid-period in the denominator flatters the rate.
• Mixing periods. Comparing a monthly churn rate against an annual one, or reporting a single rate without saying which period it covers, breaks every comparison. Compound a monthly rate before you set it next to an annual figure.
• Confusing customer churn with revenue churn. A 5% customer churn and a 5% revenue churn can describe very different situations. Pick one definition and label it.
• Reading a blended rate as the whole story. One number across the entire base hides which cohorts leave. Early-life churn is usually far higher than mature-account churn, and the blend masks it.
• Ignoring involuntary churn. Failed card payments lose customers who never chose to leave. They land in your churn figure unless you separate and recover them.

Churn does more than score retention: it drives how long a customer stays, which feeds straight into lifetime value. A lower churn rate means a longer average lifespan and a higher customer lifetime value (LTV). See how the two connect in how to calculate LTV, or work the number directly in the LTV calculator.