Customer Churn Rate
Definition
Customer churn rate is the percentage of customers who cancel or stop using a service during a given time period. It is one of the most critical health indicators for subscription businesses, directly impacting growth projections, customer lifetime value, and long-term revenue sustainability.
Formula
Overview
Customer churn rate (also called logo churn) counts the number of customers lost, regardless of how much each was paying. A company that loses ten $10/month customers and one $5,000/month customer both register the same logo churn if starting counts were equal.
Monthly churn rates between 3 to 7 % are common for SMB-focused SaaS products, while enterprise SaaS with annual contracts typically sees less than 1 % monthly. The compounding effect of churn is severe: a 5 % monthly churn rate means roughly half your customer base is gone within a year.
Reducing churn by even a fraction of a percent yields outsized returns because it increases customer lifetime value and reduces the new-customer acquisition burden. Founders should analyze churn by cohort, plan tier, and acquisition channel to identify the root causes rather than relying on blended averages.
Example
Starting the month with 1,000 customers and losing 40 yields a monthly customer churn rate of (40 ÷ 1,000) × 100 = 4 %.
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