What is Churn Rate?
Churn rate measures the rate at which customers (or revenue) are lost over a given period. For subscription and SaaS businesses, churn is one of the most important indicators of product-market fit, retention health, and long-term unit economics.
Customer Churn vs Revenue Churn
- Customer churn: the percentage of customers who cancel in a period
- Revenue churn: the percentage of recurring revenue lost in a period (often also tracked net of expansions)
These metrics can behave very differently. A company can have low customer churn but high revenue churn if it loses a few large accounts, or the reverse if it loses many small customers.
How to Calculate Churn Rate
Customer Churn (%) = Customers Lost During Period ÷ Customers at Start of Period
Gross Revenue Churn (%) = MRR Lost from Downgrades + Cancellations ÷ Starting MRR
Many SaaS teams also track Net Revenue Retention (NRR), which accounts for expansion as well as churn.
Why Churn Rate Matters for GTM
- Customer lifetime value: Higher churn lowers LTV and makes CAC harder to justify.
- Forecasting: Retention performance affects bookings needed to grow.
- Expansion efficiency: Churn can offset new sales if not controlled.
- Product feedback loop: Churn reasons reveal missing value and adoption gaps.
Common Drivers of Churn
- Poor onboarding: customers never reach first value
- Low adoption: key features aren’t used regularly
- Weak ROI narrative: value isn’t measurable or visible
- Bad fit: customers outside your ICP churn at higher rates
- Support / reliability issues: unresolved problems reduce trust
- Competitive displacement: switching to a better-fit alternative
How to Reduce Churn
- Improve onboarding: shorten time-to-value with guided setup and best practices.
- Track health signals: monitor usage, support tickets, and stakeholder engagement.
- Build an ROI model: quantify value and revisit it in QBRs.
- Align on ICP: better targeting reduces future churn risk.
- Drive adoption: focus on use cases tied to outcomes, not feature checklists.
How AI Helps With Churn Prevention
AI can predict churn risk by combining product usage, CRM signals, and conversation insights, then recommend interventions (training, executive alignment, success planning) before an account enters a renewal crisis.
help_outlineFrequently Asked Questions
What’s the difference between churn and retention?
Retention measures how much you keep; churn measures what you lose. For example, a 5% monthly customer churn implies 95% monthly customer retention (ignoring expansions and contractions).
Should we track customer churn or revenue churn?
Track both. Customer churn highlights product/fit issues across accounts, while revenue churn captures the true financial impact—especially in businesses with a wide range of contract sizes.
What’s a good churn rate for SaaS?
It varies by segment. SMB tends to have higher churn than enterprise. The best benchmark is your own trend over time and how churn impacts LTV and NRR. Improving churn even modestly can materially improve growth efficiency.
Why does churn spike after we grow faster?
Fast growth can dilute onboarding quality, lead to selling outside ICP, or overwhelm support and CS capacity. Segment churn by cohort, source, and customer size to isolate the root cause.