What Is Churn Rate? Definition, Formula, and Examples

So what is churn rate, exactly? Churn rate is the percentage of customers, subscriptions, or recurring revenue that a business loses over a specific period of time. It’s the mirror image of retention: if you keep 95% of your customers this month, your monthly customer churn rate is 5%. For any subscription business, it’s one of the few numbers that predicts long-term survival.

This article gives you a plain definition, the core formula, several worked examples with real numbers, and the important distinctions — monthly vs. annual, customer vs. revenue, voluntary vs. involuntary — that separate a useful churn number from a misleading one.

The churn rate definition

Churn rate measures loss over time. Formally, it’s the number of customers (or the amount of revenue) that leaves during a period, divided by the number (or revenue) you had at the start of that period, expressed as a percentage.

The opposite of churn is retention, and the two always add up to 100% for a given cohort. A 92% retention rate means 8% churn. Because it’s a ratio, churn works as a fair comparison across companies of very different sizes and across your own history month to month.

The churn rate formula

The most common version, customer churn over a period, is:

Churn rate = Customers lost during period ÷ Customers at start of period × 100

For revenue churn, you swap customers for dollars of recurring revenue:

Revenue churn rate = MRR lost during period ÷ MRR at start of period × 100

Both are simple on paper. The nuance lives in the details — which customers count, how you handle mid-period signups, and whether you use the starting count or an average. We cover every variation in the churn rate formula guide.

Worked examples

Example 1: basic customer churn

You start January with 500 customers. During the month, 20 cancel. Your monthly customer churn rate is 20 ÷ 500 × 100 = 4%. Simple. Note that we ignore any new customers who signed up in January — churn measures losses from the starting base only.

Example 2: revenue churn tells a different story

Same month, same 20 cancellations. But suppose those 20 accounts were all $10/month plans, totaling $200 in lost MRR, while you started the month at $50,000 MRR. Your revenue churn is only 200 ÷ 50,000 × 100 = 0.4%. Ten times lower than your customer churn — because you lost small accounts. This gap is exactly why you track both. See our explainer on customer churn vs. revenue churn.

Example 3: monthly vs. annual

A 5% monthly churn rate does not mean you lose 60% of customers a year. Because it compounds on a shrinking base, 5% monthly works out to roughly 46% annual churn. Always state whether a churn figure is monthly or annual — the difference is enormous.

Voluntary vs. involuntary churn

Not all churn is a customer deciding to leave. There are two kinds:

• Voluntary churnis a deliberate cancellation — the customer no longer wants the product, found an alternative, or hit a budget cut. Reducing it means improving value and onboarding.
• Involuntary churnis accidental: a card expires, a payment is declined, and the subscription lapses. It can be 20–40% of total churn and is highly recoverable through dunning and retries.

Separating the two is one of the fastest wins in churn reduction — recovering failed payments doesn’t require changing your product at all.

Gross churn vs. net churn

When people report revenue churn, they mean one of two things, and the gap between them is large enough to change how your business looks.

• Gross revenue churncounts only lost revenue — cancellations and downgrades. It can never fall below zero, which makes it the honest measure of pure leakage. If you lose $3,000 of MRR from a $60,000 base, gross revenue churn is 5%.
• Net revenue churnsubtracts expansion revenue — upgrades, extra seats, add-ons — from those losses. If that same period brought $4,000 of expansion, net churn is (3,000 − 4,000) ÷ 60,000 = −1.7%. Negative net churn means your existing customers grow your revenue even without new signups.

Both are valuable, but don’t let a healthy net number hide an ugly gross one. A company with negative net churn can still be losing lots of small customers while a few big accounts expand. Track them side by side so expansion never disguises a retention problem.

Churn rate vs. retention rate

Churn and retention are mirror images: for any cohort they sum to 100%, so a 93% retention rate is a 7% churn rate. They carry identical information but frame it differently — churn emphasizes what you’re losing, retention what you’re keeping. Pick whichever frames the conversation you need to have, but never switch between them mid-report, since "7%" and "93%" land very differently on a reader even when they mean the same thing.

Why churn rate matters

Churn sets the ceiling on your growth. If new customers arrive at 7% a month but 5% churn out, net growth is a sluggish 2%. Churn also drives customer lifetime: at 5% monthly churn the average customer stays about 20 months; at 2% they stay around 50 months. That difference flows straight into lifetime value and how much you can afford to spend acquiring customers.

This is why churn is a headline metric on nearly every SaaS dashboard, sitting right alongside MRR and net revenue retention. Get churn under control and almost every other number improves.

What counts as a good churn rate?

Once you can define and calculate churn, the natural next question is whether yours is healthy. Benchmarks vary widely by market, but as a rough guide:

• SMB SaaScommonly sees monthly customer churn of 3–8%, because small businesses open and close quickly and are price-sensitive.
• Mid-market and enterpriseusually targets under 1–2% monthly, thanks to annual contracts and higher switching costs.
• Revenue churnis often lower than customer churn if your smaller accounts churn fastest — and the best companies push net revenue churn negative through expansion.

Don’t fixate on hitting someone else’s benchmark. A churn rate that trends down over successive quarters is a far better signal than any single snapshot compared against an industry average that may not match your business model.

It’s also worth remembering that churn is naturally noisy when your customer base is small. Losing 2 of 30 customers is a 6.7% churn rate driven by a single bad month, not a durable pattern. Wait until you have enough volume and enough consecutive periods before you draw strong conclusions, and lean on the trend rather than any one reading.

Tracking churn accurately from Stripe

Defining churn is easy; measuring it consistently from live Stripe data is where teams struggle. Cancellations mid-cycle, failed payments, downgrades, and mixed billing intervals all complicate the count, and a small definitional choice can shift the number by a full point.

StripeReport connects with a read-only Stripe key and computes your customer and revenue churn automatically, the same way every period, then delivers it via daily email or Slack. You get a churn number you can defend to your board without babysitting a spreadsheet, alongside continuous churn rate tracking.

Key takeaways

• Churn rate is the percentage of customers or revenue lost over a period — the inverse of retention.
• The core formula divides losses by the starting base; revenue churn swaps customers for MRR.
• Monthly and annual churn are very different because churn compounds; always state the window.
• Split churn into voluntary and involuntary — recovering failed payments is one of the quickest wins available.