Churn Rate

Churn rate measures how quickly you're losing customers or revenue over a specific time period. There are two types: customer churn (also called logo churn) and revenue churn. Customer churn counts how many customers cancel, while revenue churn measures the dollar value of lost recurring revenue. They're related but can tell very different stories.

Customer churn is calculated as: (customers lost during period / customers at start of period) × 100. If you start the month with 500 customers and 25 cancel, your monthly customer churn is 5%. Revenue churn works the same way but with dollars: if your $50,000 MRR loses $2,500 from cancellations and downgrades, your gross revenue churn is 5%.

The distinction matters because you could lose many small customers (high logo churn) while retaining your biggest accounts (low revenue churn) — or vice versa. Revenue churn is generally the more important metric because it directly impacts your financial trajectory. A SaaS business with 2% monthly revenue churn loses about 22% of its revenue annually (compounded), which means you need to add at least 22% in new revenue each year just to stay flat. That's why churn is called the silent killer — it creates an ever-bigger hole you need to fill with new business.

Churn is arguably the most important metric for the long-term health of a SaaS startup. High churn means your product isn't sticky, your customers aren't getting enough value, or you're attracting the wrong audience. For investors, churn rates signal product-market fit: monthly churn below 2% (annual churn under 20%) is acceptable for SMB SaaS; enterprise SaaS should target under 1% monthly (under 10% annual). Reducing churn by even 1% has an outsized compounding effect on revenue growth over time.