Churn Rate

Also known as: Customer ChurnAttrition RateCancellation RateLogo ChurnRevenue Churn

Monthly Churn Rate = (Lost Customers ÷ Start-of-Month Customers) × 100%

💡The Concept

Churn rate measures the percentage of customers who cancel or stop paying during a given time period. It is the silent killer of SaaS businesses — even a small monthly churn compounds into massive annual losses. A 5% monthly churn sounds manageable, but compounded over 12 months, you lose 46% of your customer base. To maintain the same revenue, you need to acquire enough new customers to replace nearly HALF your base every year. This is why the best SaaS companies obsess over churn — Slack's monthly churn below 1% means they retain 89% of customers annually, creating a compounding revenue machine.

⚠️The Trap

The trap is tracking only 'logo churn' (customers lost) and ignoring 'revenue churn' (revenue lost from downgrades). You could have 3% logo churn but 8% revenue churn if your largest customers are downgrading. Revenue churn is more dangerous because it hits your top line harder. The second trap: calculating churn from the wrong denominator. Always use start-of-period customers, not end-of-period or average. Using end-of-period inflates your denominator and makes churn look artificially low.

🎯The Action

Calculate two churn metrics monthly: Logo Churn = Customers Lost ÷ Start-of-Month Customers × 100. Revenue Churn = MRR Lost (cancellations + downgrades) ÷ Start-of-Month MRR × 100. Implement an exit survey on your cancellation page to identify the #1 reason people leave — the top reason is usually fixable. Target: under 5% monthly for SMB SaaS, under 2% for mid-market, under 1% for enterprise.

⚡Pro Tips

Churn is a compounding problem. At 5% monthly churn, you need to grow your customer base by 5% JUST TO STAY FLAT. To grow 20% annually, you actually need to add 66% more customers (20% growth + 46% to replace churn). Reducing churn from 5% to 3% is equivalent to adding an entire marketing channel.

Track churn by cohort, not in aggregate. Aggregate churn masks the fact that new customers churn at 2-3x the rate of established ones (they haven't built habits yet). Cohort analysis reveals your true 'steady-state' churn after the first 90 days.

Negative net revenue churn (NRR > 100%) is the holy grail. This means expansion revenue from existing customers exceeds churned revenue — your customer base grows automatically even with zero new customers. Snowflake, Datadog, and Twilio all achieved NRR > 130%.

🚫Common Myths

✗Myth: “Some churn is inevitable — don't worry about it”

✓Reality: While zero churn is impossible, the difference between 5% and 2% monthly churn is existential. At 5%, you replace 46% of your base annually. At 2%, you replace 21%. That 3 percentage point difference means 25% fewer customers to replace — the equivalent of cutting your required acquisition spend by a third.

✗Myth: “Churn only matters at scale”

✓Reality: Churn matters MORE at small scale. A 100-customer SaaS losing 5 customers/month needs to acquire 5 just to tread water. If CAC is $500, that's $2,500/month spent replacing lost customers before any growth investment. At small scale, churn directly consumes your runway.