Churn Rate
The percentage of customers or revenue lost during a given period.
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Definition
Churn rate measures the percentage of customers (logo churn) or revenue (revenue churn) lost during a specific period. It is the inverse of retention and one of the most critical metrics for subscription businesses. High churn can kill a SaaS company even if acquisition is strong.
There are several types of churn: Logo churn (customer count), Gross revenue churn (revenue lost, before expansion), and Net revenue churn (revenue lost after accounting for expansion from remaining customers). Net negative churn — where expansion revenue exceeds churned revenue — is the holy grail.
Churn compounds over time. A seemingly small 5% monthly churn means losing 46% of customers annually. This compounding effect makes churn the most leveraged metric to improve in a SaaS business.
Why It Matters for Founders
Churn directly determines the ceiling of your business. No amount of new customer acquisition can overcome fundamentally broken retention. A company acquiring 100 customers/month but churning 50 can never grow beyond 200 customers in steady state. Reducing churn is the most capital-efficient growth lever.
VCs scrutinize churn rates as a proxy for product-market fit. Low churn means customers find your product essential. High churn suggests the product is nice-to-have, poorly onboarded, or mispositioned. Every 5% reduction in annual churn increases company valuation by approximately 1.2x.
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Formula
Monthly Churn Rate = (Customers lost in month / Customers at start of month) × 100%Real-World Example
A SaaS company starts the month with 1,000 customers and loses 30. Their monthly logo churn rate is 3%. If those 30 customers had an average contract value of $200/month, revenue churn is $6,000 / total MRR.
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Frequently Asked Questions
What is a good churn rate for SaaS?+
What is the difference between logo and revenue churn?+
What causes high churn?+
What is net negative churn?+
How can I reduce churn?+
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