Churn rate measures the number of customers you’ve lost over a given period of time. Like retention rates, it’s measured as a percentage. Also like retention rates, you can measure churn for any period you choose. Whether you measure monthly, quarterly, or annual churn rates, consistency is key. Always compare results based on similar periods.
A low churn rate is critical for success, and generally indicates high customer satisfaction levels. When people are happy with your product, they’re much more likely to upgrade or select add-ons. They’re also more likely to recommend you to a friend. In other words, low churn can boost your net promoter score (NPS) and monthly recurring revenue (MRR)—often at the same time.
How to calculate churn rate
To calculate your customer churn rate, you’ll only need the number of customers you had at the start of the time period (S) and the number you have at the end of the period (E). The churn rate formula is as follows:
((S − E) / S) × 100 = Customer Churn Rate
Using the same example as provided earlier, if you had 150 customers at the start of the quarter, and 85 customers at the end of the quarter, you would do the following equation to determine your churn rate:
((150 - 85) / 150) x 100 = 43.3% Customer Churn Rate
To measure your revenue churn rate, you should use a similar approach. Simply, look at the revenue you’re bringing in at the end of the period compared to the revenue you were making at the beginning of the period, making sure not to count revenue from new customers.
Churn rate benchmark data
The following benchmarks are specific for SaaS companies and are based on data from the end of 2020 to the end of 2021, as reported by Key Banc's 2022 Private SaaS Company Survey:
Median Gross Dollar Churn Rate: 14%
This shows how much revenue is lost from existing customers over a certain time period, and indicates the financial impact of customer churn.
Median Annual Logo Churn: 13%
This measures the midpoint of the percentage of customers lost during a year. It provides a benchmark for customer attrition and indicates the average customer turnover.
When trying to narrow in on a good churn rate, be sure to consider how certain time frames affect your churn calculations. For instance, if many of your customer's subscriptions end at a similar time, you may have a higher churn rate right before the renewal day than you do in the midst of their contract. Additionally, some software types may utilize month-to-month contracts, whereas others require contracts of several years at a time. All of these factors will weigh in when comparing your own churn rates to generalized industry benchmarks.