Churn Rate — Definition, Calculation and Thresholds

Full definition

Customer churn rate : % of customers who cancel their subscription over a given period.

Churn rate income (Revenue Churn) : % of revenue lost over a period — including terminations and downgrades.

NRR (Net Revenue Retention) : % of revenue retained from a cohort, including expansion (upsell). NRR > 100% = existing customers generate more revenue despite churn.

Gross Churn : revenue lost by terminations only.

Net Churn : Gross Churn − Expansion (upsell/cross-sell).

Calculation formula

Customer Churn = Customers lost (month N) / Customers at the beginning of month N × 100

Revenue Churn = MRR lost (month N) / MRR at the beginning of month N × 100

NRR = (MRR start + Expansion − Contraction − Churn) / MRR start × 100

Why it matters

PMF indicator. Churn > 5%/month for B2B SaaS = product or targeting problem. < 2% = sticky product.

Exponential impact. Churn of 5%/month = 46% annually. Even with a strong acquisition, net growth is penalized.

Acquisition cost vs. retention. Acquiring a new customer costs 5 to 25x more than retaining one.

Valuation. Significant discount for startups with high churn. NRR > 120% = premium valuation.

Benchmarks and thresholds

Churn B2B SaaS customer : excellent < 2%/month. Good 2-3%. To watch 3-5%. Critical > 5%.

B2C customer churn : excellent < 5%/month. Good 5-8%. To watch 8-12%. Review > 12%.

NRR B2B SaaS : excellent > 120%. Good 110-120%. Healthy 100-110%. <100% critical.

Net revenue churn B2B : ideal < 0% (negative churn). 0-2% good. > 5% critical.

Limits and pitfalls

Churn by segment. The churn of small customers can be 3x higher than that of large accounts.

Churn early adopters ≠ mainstream. The first customers are more tolerant.

Misleading annualized churn. 2%/month ≠ 24% annually. Formula: 1 − (1 − monthly churn)^12.

Voluntary vs. Involuntary churn. Involuntary churn (expired card) = 20-40% of the total, recoverable by dunning.

Churn masked by growth. Always calculate churn alongside NRR.

FAQ

What is a good churn rate for a B2B SaaS? < 2% monthly (22% annual) = good. < 1% = excellent. > 5% = critical.

How to reduce churn? Proactive customer success, optimized onboarding, sticky features, pricing aligned with value, regular NPS.

Customer churn vs revenue churn? Revenue churn includes downgrades. A customer churn of 3% can coexist with a revenue churn of 5%.

What is negative churn? When expansion exceeds churn — NRR > 100%. Ideal state of a mature SaaS.