What Is Churn Rate?

Churn is the leaky bucket of subscription businesses. No matter how fast a company acquires new customers, high churn ensures they flow out almost as quickly. Understanding, measuring, and reducing churn is arguably the most important FP&A and operational challenge for any recurring revenue business.

Customer churn rate = Number of Customers Lost / Starting Customers x 100. Revenue churn rate = MRR Lost from Churned Customers / Starting MRR x 100. These can differ when higher- or lower-value customers churn at different rates.

Gross revenue churn counts only lost revenue. Net revenue churn (or net revenue retention, inverted) accounts for expansion revenue from remaining customers. A company can have 5% gross revenue churn but -2% net revenue churn if expansion from existing customers exceeds the churn — meaning the existing customer base grows in value over time.

Churn analysis should segment by customer type, plan level, tenure, and acquisition channel. Common patterns include: higher churn among smaller customers, lower churn among customers using more features, higher churn in the first 90 days (activation failure), and seasonality in certain industries.

For FP&A teams, churn is a critical input to revenue forecasting and LTV calculations. A 1% monthly churn rate implies an average customer lifespan of 100 months. Reducing this to 0.8% extends average lifespan to 125 months — a 25% increase in LTV from a seemingly small improvement.

UK SaaS benchmarks suggest that best-in-class B2B companies achieve monthly customer churn rates below 1% (annual churn below 12%). SMB-focused businesses typically see 3-5% monthly churn. Consumer subscriptions may see 5-10% monthly churn.