SaaS churn rate calculator

How churn rate is calculated

Customer churn rate is the customers you lost during a period divided by the customers you had at the start of it. Twelve cancellations against 300 customers at the start of the month is 4% monthly churn. The base is always where you began, never where you ended, because a growing denominator makes churn look better the faster you sell.

The annualized figure compounds rather than multiplying. Each month applies to whatever is left after the previous one, so twelve months of 4% is 1 minus 0.96 to the twelfth power, about 39%, not 48%. Multiplying by twelve always overstates it, and the overstatement grows with the rate.

Both figures here count customers, not revenue. If your customers pay wildly different amounts, run the revenue version too: losing one enterprise account and losing one trial-tier account are the same event to a customer churn rate and nothing alike to the business.

• Monthly churn = customers lost ÷ customers at the start of the month
• Annualized churn = 1 − (1 − monthly rate) to the power of 12
• Customers acquired mid-period stay out of the denominator
• A cancellation that takes effect next month belongs to next month

Customer churn vs revenue churn

Counting logos and counting dollars answer different questions, and a healthy number in one can hide a serious problem in the other. A month where you lose fifteen small accounts and keep every large one looks alarming by customer churn and barely registers by revenue churn. Reverse it, lose one large account and nothing else, and the two swap places.

Revenue churn itself splits in two. The gross version counts only what you lost, cancellations plus downgrades, against the MRR you started with. The net version subtracts the expansion and reactivation you earned from existing customers in the same period, so it can go negative when upgrades outrun losses. Negative net churn is the number investors look for, because it means the book grows without a single new customer.

Use customer churn to judge the product and the onboarding, since every customer who leaves is a customer who stopped getting value. Use revenue churn to judge the business, since that is the number that shows up in the bank.

• Customer churn treats every logo the same
• Gross MRR churn weighs customers by revenue
• Net MRR churn nets expansion against losses

What churn costs you

Churn sets the ceiling on growth before any sales work happens. At 5% a month you lose about 46% of your customers over a year, so roughly half your acquisition budget is spent standing still. At 2% that figure is about 22%, which is the difference between growth that compounds and growth you have to buy every month.

It also drives lifetime value directly, since LTV divides average revenue per account by the churn rate. Cutting monthly churn from 4% to 3% raises the expected lifetime from 25 months to 33 and takes lifetime value up by a third, on identical pricing. That is usually cheaper to achieve than a third more revenue per customer.