Churn Rate
Churn rate is the percentage of customers or revenue that stop using or paying for a product over a defined period (monthly, quarterly, annually). It is measured separately as customer churn (logos lost) and revenue churn (dollars lost), and treated as the inverse of retention. It is one of the two or three numbers that determine whether a subscription business compounds or quietly dies.
There are two distinct measurements that get conflated and should not be: customer churn is logos divided by logos at start of period; revenue churn is MRR (or ARR) lost divided by MRR at start of period. A SaaS business can have low customer churn and catastrophic revenue churn if it loses its biggest accounts; the inverse is true at the SMB tier where lots of small accounts churn but the dollar impact is muted. Two other distinctions matter: gross churn counts only losses, while net churn subtracts expansion revenue (upsells, cross-sells, seat increases) from gross losses. A best-in-class B2B SaaS company runs gross monthly customer churn under 1 percent (under ~12 percent annually), gross revenue churn under 1 percent monthly, and negative net revenue churn (expansion exceeds losses, NRR above 100 percent). Mid-market SaaS targets NRR of 110 to 130 percent; the public-market top quartile (Snowflake, Datadog, MongoDB) has historically posted NRR above 130 percent. SMB SaaS naturally churns harder: 3 to 5 percent monthly is common and not always a death sentence if unit economics still work.
Ryan's Take
Churn is the math that kills SaaS companies quietly. A 5 percent monthly churn rate sounds manageable until you realize the company has to replace 60 percent of its customer base every year just to stand still. Founders see acquisition numbers go up, feel like the business is growing, and miss that the bucket is draining as fast as it's filling. Always compute churn at the cohort level before you celebrate a growth number. If the cohort is shrinking faster than you can refill it, you do not have growth. You have a treadmill.
What founders get wrong: Reporting blended churn across all segments and pricing tiers. Self-serve SMB customers churn at a fundamentally different rate than enterprise customers; mixing them produces a number that lies to everyone. Segment churn by acquisition channel, customer size, and pricing tier. The blended number is almost always either too rosy or too scary, and is never useful for fixing the problem.
Related: Retention · Net Revenue Retention · Cohort Analysis · LTV · Unit Economics
FAQ
What is churn rate?
The percentage of customers (or revenue) that stop using or paying for a product over a defined period (monthly, quarterly, annually). Measured separately as customer churn (logos lost) and revenue churn (dollars lost), and treated as the inverse of retention.
What is a good churn rate for SaaS?
Best-in-class B2B SaaS runs gross monthly customer churn under 1% (~12% annually) and gross revenue churn under 1% monthly, with negative net revenue churn from expansion. SMB SaaS naturally churns harder, 3 to 5% monthly is common and survivable if unit economics support it.
What is the difference between gross and net churn?
Gross churn counts only customers or dollars lost. Net churn subtracts expansion revenue (upsells, cross-sells, seat growth) from gross losses. A business with net negative revenue churn (NRR over 100%) grows from its existing customer base even before adding new logos.
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