Introduction to Churn Rate
If you’re in SaaS, you need a clear handle on churn rate, which indicates how many customers or how much revenue you’re losing over time. The churn rate formula gives you that number — and it tells you whether your growth is real or just replacing what’s slipping away.
Understanding churn rate is non-negotiable for revenue operators who care about retention, recurring revenue, and scaling with control. It’s a readout on product-market fit, customer stickiness, and how reliable your revenue will be next quarter.
In this guide, we’ll break down how to calculate churn rate, walk through the exact churn rate formula, show a practical churn rate example, and explain what your number really means. Then we’ll go deeper into how to use churn data to drive action.
Understanding Different Types of Churn
In the SaaS world, “churn rate” isn’t just one number. It has several important variations that give deeper insight into your business health.
Customer churn (logo churn)
Customer churn is the percentage of customers who terminated their contract or failed to renew in a given period. The focus is purely on account count, regardless of how much revenue each account represented.
Revenue churn
Revenue churn measures the recurring revenue lost due to cancellations, downgrades, or non-renewals. Because not all customers generate equal revenue, revenue churn gives a financial perspective on attrition.
Gross vs net churn
Gross churn: total revenue lost from cancellations and downgrades (no offsetting expansions).
Net churn: gross churn less any expansion revenue from existing customers (upsells, cross-sells). When net churn becomes negative, you’re growing revenue even after losses.
It matters what kind of churn you’re measuring, and why. Finance, marketing, product, and CS all track churn differently, depending on what they’re trying to improve.
Why Churn Rate Matters and the Risks of Neglect
You can ignore churn rate, but it won’t ignore you. Here’s what’s at stake.
Why it matters
Growth sustainability: In a subscription business model, acquiring new customers is expensive. If you lose too many existing ones, new acquisition has to work harder to keep up growth. A persistently high churn rate erodes your growth engine.
Revenue predictability: For SaaS companies, recurring revenue gives visibility into future cash flows. Churn undermines that visibility. The higher your churn rate, the less confidence you have in future revenue and the more difficult forecasting becomes.
Unit-economics impact: Churn hits unit economics hard. When customers leave early, there’s less time to recover acquisition and onboarding costs, let alone grow the account. That drag shows up fast in your lifetime value (LTV) to customer acquisition cost (CAC) ratio.
Valuation and investment risk: For investors or acquirers, churn is a red-flag metric. A company with shrinking retention looks riskier. Sustained low churn or negative net churn signals stronger product-market fit and scaling potential.
Knowing why churn matters is just a start. What happens when you don’t act on it?
Consequences of not managing churn
Leaky bucket syndrome: You keep acquiring new customers, but you’re losing so many that net customer growth stalls or reverses.
Cost escalation: To maintain monthly recurring revenue (MRR) and/or annual recurring revenue (ARR), you must spend more on acquisition just to replace what you’ve lost. Marketing and sales costs increase.
Distorted metrics: If you ignore revenue churn and focus only on customer count, you may overlook losing high-value accounts while retaining many low-value ones.
Eroded morale and confidence: For leadership and teams, seeing churn creep up without action can lead to strategic drift or short-term fixes.
Risk of locking in bad customers: If you don’t identify why accounts are churning, you may keep acquiring non-ideal customers whose lifetime is short, thus skewing retention and product focus.
If you don’t know your churn rate, you don’t know how strong your foundation is. You’re building on shifting sands.
Calculating Churn Rate: Formulas and Examples
Here’s how to calculate churn rate in practice — both for customer churn and revenue churn — so you can apply it in your SaaS business.
Customer churn rate formula
Customer Churn Rate (%) = Customers Lost During Period/Customers at Start of Period x 100.
Example: If you began the month with 500 customers and lost 25 during that month:
25 lost customers/500 customers x 100 = 5% monthly churn rate.
Or, simplified: 25/500 x 100 = 5%.
A key point: new customers acquired during the period should not be included in the denominator when calculating churn for that period, since the goal is to measure retention of the existing base.
Revenue churn rate formula
Because customer revenue varies, you need to measure the actual dollar impact of churn.
Formula (Gross Revenue Churn):
Revenue Churn Rate (%) = Recurring Revenue Lost/Recurring Revenue at Start x 100
Example: Your MRR at the beginning of the month is $120,000. During the month, $9,600 is lost from cancellations and downgrades.
9600 revenue lost/120000 recurring revenue at start x 100 = 8%
MRR at start: $120,000
MRR lost: $9,600
Revenue churn rate: 8%
Converting from monthly churn to annual churn
If you have monthly churn data and want to understand annualised impact, there are formulas. For example:
Annual Churn Rate = 1− (1 − Monthly Churn Rate)12
Example:
A monthly churn of 8% roughly translates to an annual churn around 63.23% (using the formula above).
If your SaaS business experiences 8% churn every month, the compounded annual churn rate isn’t 96% (8 × 12). It's 63.23%, because compounding reduces the effect of simply adding monthly churn rates together.
SaaS churn rate benchmarks for context
While benchmarks vary by company size, market, contract type and geography, recent data suggests:
Best-in-class B2B SaaS aim for less than 1% monthly churn (i.e., less than 12% annually) when customers are enterprise-grade
Data for the average SaaS churn rate varies depending on source, putting it anywhere from around 5% to as much as 13%
You should benchmark your own business against peers with similar contract size, customer segments, and business models.
Strategies to Reduce Churn Rate
Understanding how to calculate churn is only the starting point. The real impact comes from turning that insight into action, strengthening retention, protecting recurring revenue, and improving customer lifetime value.
Below are proven, data-backed strategies SaaS teams can use to get ahead of churn and drive more predictable growth:
1. Segment and analyze churn
Break down churn by customer segment: by contract size (SMB vs. enterprise), by tenure (new vs. established customers), by product line, and by region. Understanding who is churning and when gives you the context to act.
To actually spot churn risk, you need clean customer records. That’s why smart teams use ZoomInfo to enrich customer records and fill in the gaps with firmographic and technographic data that’s accurate today, not last quarter. Better data in, better signals out.
2. Develop customer health scoring
Assign each customer a health score based on usage metrics, support tickets, NPS survey responses, feature adoption, and renewal history. Customers with poor or falling health scores can be flagged for proactive outreach before they churn.
3. Improve onboarding and time-to-value
Many customers churn because they never fully experienced the value of the product. A structured onboarding journey with milestones, check-ins, and value benchmarks reduces early churn risk.
4. Invest in customer success
Customer success should be proactive, not reactive. Regular business reviews, a true account management framework, and upsell/cross-sell opportunities help engage customers and deepen their relationship with your product.
5. Leverage product and feature adoption
Monitor usage patterns. If key features or modules are underutilized, those customers are at higher churn risk. Use this data to trigger nudges, training, or personalised support.
6. Monitor pricing and contract structures
Customers may churn because of pricing misalignment or contract rigidity. Use flexible plans, renewal incentives, or downgrade mitigation paths to keep customers from simply cancelling.
7. Use predictive churn modelling and feedback loops
Use analytics to identify early warning signs of churn. These red flags include decline in usage, or an increase in support tickets. Then feed churn root-cause information back into product, marketing, and onboarding process improvements.
When titles change or buying power moves, so does your risk. Tracking job shifts and org changes inside customer accounts gives your team the heads-up they need to act early and keep revenue in play.
Churn Shows You Where Revenue Is Leaking And What To Fix Next
Churn tells you what’s slipping through the cracks. If you’re running a SaaS business, you need to know what to track and how to track it. The formula is simple. The hard part is turning that number into action.
The key takeaways:
Define your time period and be consistent (monthly, quarterly, annually) when calculating churn
Always include both customer count and revenue perspectives because churn in logo count alone doesn’t tell the full story
Benchmark against similar companies and contract types, but prioritise tracking your own trend over comparison alone
Use the churn rate as a signal, not a final destination: investigate the why, segment the data, and act proactively
Lowering churn improves the ROI of your acquisition efforts, increases LTV, strengthens forecast accuracy, and ultimately makes your SaaS business more scalable and defensible
Driving real product value is one of the most effective ways to reduce churn. The more your customers get out of what you’ve built, the longer they stick around, and the more their lifetime value grows.
When you know how to calculate churn rate, you get a clear view of your business health and the power to shape your retention strategy. Growth gets derailed by the churn you don't measure and don’t manage.