Free tool
Churn rate calculator
The short answer
Monthly customer churn is customers lost in the month divided by customers at the start of it: 14 of 400 is 3.5%. That compounds to about 34.8% a year, not 42%, because annual churn is 1 - (1 - monthly churn)^12. Revenue churn and net revenue retention add the downgrades and upgrades that customer counts miss.
On this page 5 sections
Churn and retention
Customers
Do not subtract new customers
Recurring revenue (optional)
Existing customers only
Customer churn (month)
3.50%
Annualised churn
34.8%
Gross revenue churn
4.38%
Net revenue retention
101.6%
Expansion from existing customers more than covers what you lost: net revenue retention of 101.6% means revenue from this group grows even with no new customers.
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The formulas
- Customer churn = customers lost in the period / customers at the start of the period. New customers signed during the month are left out of both numbers.
- Annualised churn = 1 - (1 - monthly churn)^12. Monthly from annual = 1 - (1 - annual churn)^(1/12).
- Gross revenue churn = (MRR lost to cancellations + MRR lost to downgrades) / MRR at the start.
- Net revenue retention (NRR) = (starting MRR - cancellations - downgrades + upgrades) / starting MRR.
- Average lifetime is roughly 1 / monthly churn: at 3.5%, about 29 months.
Worked example
A software business starts the month with 400 customers and $32,000 of MRR. 14 customers cancel, taking $1,100; others downgrade by $300; existing customers upgrade by $1,900. Customer churn is 3.5% (34.8% a year). Gross revenue churn is $1,400 / $32,000 = 4.4%. NRR is ($32,000 - $1,400 + $1,900) / $32,000 = 101.6%: the existing base grew even though 14 customers left.
Pitfalls
- Multiplying monthly churn by 12 overstates annual churn, because the customers who leave in month 1 cannot leave again in month 2.
- Mixing in new customers. Dividing by end-of-month customers, or netting new sign-ups against losses, hides churn behind growth.
- One blended rate. Churn is usually far higher in the first months of a customer's life. Look at it by signup month with the cohort retention calculator.
- Annual contracts. Customers on annual plans can only churn at renewal, so monthly churn on a mixed base swings with the renewal calendar. Measure annual-plan churn at renewal.
Churn is the denominator of lifetime value: plug it into the LTV to CAC calculator. Finding out why customers leave is a survey job; see the best survey tools and how to measure NPS.
Questions
- How do you calculate churn rate?
- Divide the customers lost during a period by the customers you had at the start of it. 14 cancellations from 400 starting customers is a 3.5% monthly churn rate.
- How do you convert monthly churn to annual churn?
- Annual churn = 1 - (1 - monthly churn)^12. A 3.5% monthly churn rate is 1 - 0.965^12, about 34.8% a year, not 3.5% x 12 = 42%.
- What is net revenue retention?
- NRR is the revenue you keep from existing customers after cancellations and downgrades, plus upgrades, as a share of what they paid at the start. Above 100% means the existing base grows with no new customers.
Related guides
SaaS metrics: LTV, CAC, payback and churn explained
How to calculate customer lifetime value, customer acquisition cost, CAC payback and churn for a SaaS or subscription business, and what the ratios mean.
Cohort analysis explained, with GA4 steps
What a cohort retention table shows, how to read the triangle, standard vs rolling vs cumulative retention, and how to build a cohort exploration in GA4.
How to measure NPS (Net Promoter Score)
How to ask the NPS question, calculate the score, choose when and where to survey, and turn the follow-up comments into decisions.
What is predictive analytics for a small business?
Predictive analytics in plain terms: what it predicts (churn, lifetime value, lead score, demand), the data you need, and how a smaller business starts.