What Is Churn Rate?
Churn rate measures how fast you are losing customers or revenue. It is one of the most important — and most often ignored — metrics for any subscription business.
Key Takeaways
- Customer churn rate = customers lost in period ÷ customers at start of period × 100
- Revenue churn rate measures the £ value lost, not just the count of customers
- Even small churn rates compound dramatically — 5% monthly churn means losing half your customers every year
- Net revenue retention (NRR) above 100% means expansion revenue offsets churn — the ideal SaaS position
Two types of churn
Customer churn (or logo churn) counts the number of customers who cancel in a period as a percentage of total customers at the start of that period. Revenue churn (or MRR churn) measures the recurring revenue lost from cancellations as a percentage of total MRR at the start of the period. Revenue churn is more useful for businesses with variable contract sizes — losing one enterprise customer worth £5,000/month matters far more than losing five customers worth £50/month each, and customer churn treats them identically.
How to calculate monthly churn
Monthly customer churn rate = (customers lost in month ÷ customers at start of month) × 100. If you had 200 customers at the start of the month and 8 cancelled, your monthly churn rate is 4%. Monthly revenue churn rate = (MRR lost from cancellations ÷ MRR at start of month) × 100. Note: do not include contraction MRR (downgrades) in churned MRR — track those separately.
The compounding problem
Churn compounds in the same way growth does — but in reverse. A 5% monthly churn rate sounds manageable, but means you lose approximately 46% of your customer base every year (because you are losing 5% of a shrinking base each month). A 2% monthly churn rate means losing roughly 21% annually. This is why SaaS investors are so focused on churn: a business with 5% monthly churn must replace nearly half its revenue base each year just to stay flat — growth on top of that becomes extremely expensive.
Gross churn vs net revenue retention
Gross revenue churn measures revenue lost from cancellations only. Net Revenue Retention (NRR) = (Starting MRR + Expansion MRR − Churned MRR − Contraction MRR) ÷ Starting MRR × 100. An NRR above 100% means expansion revenue from existing customers more than offsets losses from churn — the revenue base grows even without a single new customer. This is the gold standard for SaaS businesses and a major driver of valuation multiples.