Churn rate is the share of customers, or revenue, that you lose over a given period. It's the leak in your bucket, and the single fastest way to see whether growth is real or just papered over by acquisition. Plugging that leak is the whole job of a retention strategy.
How to calculate churn rate
Worked example: you start January with 1,000 paying customers and 30 of them cancel before the month ends. 30 ÷ 1,000 × 100 = 3% monthly churn. Count only customers who were there at the start; new signups that cancel in the same month get handled in cohort views, not this headline number.
The trap is that monthly churn compounds. 3% a month sounds harmless, but 1 − 0.97¹² works out to losing about 31% of your base in a year. At 5% monthly you lose 46% a year. Small monthly leaks are big annual floods, which is why churn deserves a spot next to MRR on the dashboard, not in a quarterly review.
Customer churn vs revenue churn
Customer churn counts logos; revenue churn counts dollars. They diverge the moment your customers vary in size: lose ten $10/month hobbyists and you barely notice, lose one $10,000/month account and revenue churn screams while customer churn shrugs. B2B teams should treat revenue churn as the primary number.
Watch net revenue churn above all: gross revenue lost minus expansion revenue from upgrades. If expansion from existing customers outweighs losses, net churn goes negative, the holy grail. Your revenue then grows even with zero new customers.
What is a good churn rate?
Benchmarks depend on who you sell to. Recurly's 2024 State of Subscriptions puts median churn near 4% monthly across subscription businesses, with software voluntary churn closer to 2.2%. Optifai's 939-company dataset splits that by segment: SMB SaaS at 3 to 5% monthly, mid-market at 1.5 to 3%, enterprise at 1 to 2%, and best-in-class under 1%. The pattern holds everywhere: the bigger the contract, the lower the churn you can survive.
| Segment | Monthly churn | Verdict |
|---|---|---|
| Enterprise SaaS | 1-2% | The standard you're held to |
| Mid-market SaaS | 1.5-3% | Healthy |
| SaaS subscription median | ~4% | Survivable, not fundable |
| SMB / prosumer SaaS | 3-5% | Typical, fix before scaling spend |
| Any segment | >8% | Emergency. Stop acquiring, start retaining |
High churn quietly poisons every other metric: it shortens customer lifetime value, stretches your CAC payback period, and caps how big the business can ever get. Before spending another dollar on acquisition, check the inverse metric: retention rate.
Churn Rate benchmarks by industry
| Industry | Median | Good | Great |
|---|---|---|---|
| SaaS | 3.8% | 2.0% | 1.0% |
| Fintech* (estimate) | 3.0% | 1.5% | 0.7% |
| Dev Tools | 1.8% | 1.0% | 0.6% |
| AI/ML | 5.0% | 3.0% | 1.8% |
| E-commerce | 6.0% | 3.5% | 2.0% |
| Healthtech* (estimate) | 3.2% | 1.8% | 0.9% |
| Martech | 4.8% | 2.8% | 1.5% |
The spread across industries is real, not noise. Focus Digital's 2025 vertical report puts infrastructure and dev tools at the bottom (1.8% monthly, because nobody rips out their database on a whim) and marketing or sales tooling near the top (4.8 to 5.2%, because a tool that fails to show ROI gets cut first). AI/ML sits highest of all. ChartMogul's AI-native cohort calls it the tourist effect: people sign up to try the shiny thing, poke at it for a week, and leave. So read your row against your peers, not the global average. A 4% monthly churn that would worry a dev-tools company is a normal Tuesday for a consumer subscription box.
Frequently asked questions
What is a good churn rate?
It depends on what you sell and who you sell to. For B2B SaaS, enterprise products target 1 to 2% monthly, mid-market sits around 1.5 to 3%, and SMB or prosumer tools run 3 to 5%, per Optifai's 939-company dataset. Median subscription churn lands near 4% monthly in Recurly's data. Best-in-class is under 1%. The larger the contract value, the lower the churn you can survive.
What is the difference between customer churn and revenue churn?
Customer churn is the percentage of accounts you lose; revenue churn is the percentage of recurring revenue you lose. They diverge when customers pay different amounts: losing one large account can dwarf losing many small ones. B2B businesses should track both but prioritise revenue churn.
How do you convert monthly churn to annual churn?
Annual churn = 1 − (1 − monthly churn)¹². You cannot just multiply by 12 because churn compounds on a shrinking base. A 3% monthly churn rate equals about 31% annually, and 5% monthly equals about 46% annually.
What is the difference between churn rate and retention rate?
Churn rate and retention rate are two sides of one number: churn is the percentage of customers you lose, retention the percentage you keep, and they add up to 100%. A 4% monthly churn means 96% monthly retention. Use churn when you want to flag a leak to fix, and retention when you want to talk about loyalty and stickiness.
