The Importance of SaaS Churn Rate Calculations
Churn rate is one of the most closely watched metrics by SaaS company investors. An above-average churn rate is a red flag that indicates the company may have product functionality, customer satisfaction, or service delivery issues. High churn, especially early in the customer lifecycle, creates a significant drag on a SaaS company’s performance.
Venture capital firms publish SaaS metrics benchmarks that operating companies can use to assess how their churn rate compares to their peer group. One of the biggest challenge with comparing metrics and benchmarking performance is that SaaS companies use slightly different approaches for their churn rate calculations.
Examples of some of the policy elections that SaaS finance teams take in adjusting churn rate calculations include decisions on:
- Revenue vs. Customer Churn – Some measure churn based on the number of customers lost, while others measure it based on the dollar value of revenue lost.
- ARR vs GAAP revenue – Those that track revenue churn may use ARR (annual recurring revenue), GAAP revenue, subscription GAAP revenue, or ACV (annual contract value) in the calculation.
- Voluntary vs. involuntary churn—Some only include voluntary churn, in which the customer actively leaves due to dissatisfaction with the product or customer experience. Others also include involuntary churn, which includes losses due to payment failures or customer insolvencies.
- Cancellations vs. downgrades—Some only include cancellations in churn, while others include contractions/downgrades in which the customer spends less or uses fewer products.
- Headquarters region vs. global—Some only include customers from their headquarters region (e.g., the US), while others include all accounts worldwide.
- Direct vs. indirect relationships—Some only include customers with a direct billing relationship, while others include accounts acquired through distribution channels.
- SMB vs. enterprise—Some track churn rates only for small businesses, while others include all customers, small, midsized, and enterprise.
Real World SaaS Churn Rate Calculation Examples
In this article, we will review eight SaaS churn rate calculation examples from some of the largest public companies, based on the details shared in their SEC filings and investor presentations. The churn rate calculation examples shared include:
Example 1
Consensus Churn Rate Calculation
Consensus Cloud Solutions is a vertical SaaS company that offers various messaging services to the healthcare industry. In October 2021, it was spun off from its parent company, J2, and listed on the NASDAQ as a public company. Providers and payers can use Consensus to exchange secure messages, faxes, HIPAA-compliant e-signatures, and various other communications using APIs and Health Information Exchange networks.
In some of its investor communications, Consensus reports on “monthly churn.” Note that the metric is an average churn rate calculated over a period (e.g., trailing three months in its quarterly results).
Consensus Monthly Churn
“Monthly churn is defined as Consensus paying customer accounts that cancelled its services during the period divided by the average number of customers over the period. This measure is calculated monthly and expressed as an average over the applicable period.”
Source: 2025 Q1 Investor Presentation from Consensus investor relations website.
Example 2
ServiceNow Churn Rate Calculation
ServiceNow is one of the largest SaaS companies and is traded on the NYSE. The company provides a no-code/low-code platform that allows IT departments to offer help desks, track hardware assets, and monitor computing infrastructure.
ServiceNow explains how it calculates its attrition rate in its investor filings. The company’s finance team applies judgments to assess which accounts should be included in the attrition rate. For example, customers who did not renew an expiring contract but are likely to renew could be excluded from attrition calculations. Additionally, accounts that cancel most, but not all, of their services could be included in the attrition figures. Also noteworthy is that ServiceNow uses ACV rather than ARR or GAAP revenue for the attrition rate calculations.
ServiceNow Attrition Rate
“We calculate our renewal rate by subtracting our attrition rate from 100%. Our attrition rate for a period is equal to the ACV from customers lost during the period, divided by the sum of (i) the total ACV from all customers that renewed during the period, excluding changes in price or users, and (ii) the total ACV from all customers lost during the period. Accordingly, our renewal rate is calculated based on ACV and is not based on the number of customers that have renewed. Further, our renewal rate does not reflect increased or decreased purchases from our customers to the extent such customers are not lost customers or lapsed renewals. A lost customer is a customer that did not renew an expiring contract and that, in our judgment, will not be renewed. Typically, a customer that reduces its subscription upon renewal is not considered a lost customer. However, in instances where the subscription decrease represents the majority of the customer’s ACV, we may deem the renewal as a lost customer.”
Source: ServiceNow SEC Form 10-K for fiscal year ending December 31, 2024
Example 3
Zoom Churn Rate Calculation
Zoom is a leading video conferencing platform for businesses. The company is publicly traded on the NYSE. Zoom reports online average monthly churn for its “online customers,” which is a segment that includes individuals and small businesses. Zoom includes both cancellations and contractions (e.g., downgrades) in its churn calculations. It is also noteworthy that Zoom reports churn in the month that the customer provides notification of intent to cancel, rather than waiting until the contract expiration date.
Zoom’s Average Monthly Churn for Online Segment
“In addition to Enterprise customers, we also have a significant number of customers that subscribe to our services directly through our website (“Online customers”). Online customers represent a diverse customer base, ranging from individual consumers to small and medium size businesses. We continue to focus on acquisition and retention of our online customer base through various strategies to improve the features and functionalities of our products and services….
We calculate our online average monthly churn by starting with the Online customer MRR as of the beginning of the applicable quarter (“Entry MRR”).
We define Entry MRR as the recurring revenue run-rate of subscription agreements from all ONLINE customers except for subscriptions that we recorded as churn in a previous quarter based on the customers’ earlier indication to us of their intention to cancel that subscription.
We then determine the MRR related to customers who canceled or downgraded their subscription or notified us of that intention during the applicable quarter (“Applicable Quarter MRR Churn”) and divide the Applicable Quarter MRR Churn by the applicable quarter Entry MRR to arrive at the MRR churn rate for Online Customers for the applicable quarter. We then divided that amount by three to calculate the online average monthly churn.”
Source: Zoom SEC Form 10-K for fiscal year ending January 31, 2025
Example 4
Q2 Churn Rate Calculation
Q2 is a publicly traded fintech company listed on the NYSE. The company’s SaaS offerings enable smaller banks and credit unions to offer digital services to consumers, small businesses, and commercial accounts. Q2 reports on a “revenue churn” metric to its investors. The most noteworthy aspect of Q2’s churn calculation is that it includes customer cancellations, contractions, and expansions. It defines “cancellations” as customers who stopped using one product or all products. It defines “downgrades” (i.e., contractions) as reductions in consumption and renewals with lower ARR.
Q2 Revenue Churn
“We utilize revenue churn, which we previously have referred to simply as churn, to monitor the satisfaction of our customers and evaluate the effectiveness of our business solutions and strategies.
We define revenue churn as the amount of any monthly recurring revenue losses due to customer cancellations and downgrades, net of upgrades and replacements of existing solutions, during a year, divided by our monthly recurring revenue at the end of the prior year.
Cancellations refer to customers that have either stopped using our services completely or remained a customer but terminated a particular service. Downgrades are a result of customers taking less of a particular service or renewing their contract for identical services at a lower price.”
Source: Q2 SEC Form 10-K for fiscal year ending December 31, 2024
Example 5
Avalara Churn Rate Calculation
Avalara is a market leader in the tax automation software segment. The company started by helping e-commerce, SaaS, and marketplaces calculate the sales taxes owed on digital sales. However, in recent years, Avalara rapidly expanded into a much broader range of tax products. In June 2018, the company went public on the NYSE. A few years later, Vista Equity Partners acquired Avalara for $8.4B and took it private.
Avalara reported its “gross annual revenue churn” to investors as a publicly traded company in its SEC filings and investor presentations. The company’s churn rate measures only cancellations, not contractions (downgrades). Avalara does not include churn from international subsidiaries and customers obtained through recent acquisitions.
Avalara Gross Annual Revenue Churn
“We define gross annual revenue churn as the annual revenue contribution associated with billing accounts that cancel all of their agreements with us divided by the total annual revenue recognized during a measurement period. As a reminder our gross annual revenue churn does not include downgrades and does not include customers that subscribe to our solutions through our international subsidiaries and certain legacy and acquired billing systems that have not yet been integrated into our primary U.S. billing systems (e.g., recent acquisitions and our lodging tax compliance solution).”
Source: Avalara Investor Day presentation – June 23, 2020
Example 6
PagerDuty Churn Rate Calculation
PagerDuty is a publicly traded SaaS company listed on the NYSE. Its products are primarily used by IT, DevOps, and security teams at large companies like Carnival, DraftKings, and Vodafone. PagerDuty reports to its investors on a metric called “ARR churn rate,” which includes only cancellations and not contractions (e.g., downgrades).
PagerDuty Total ARR Churn
“As such, we have developed a loyal customer base, with total ARR churn representing less than 5% of beginning ARR for the fiscal year ended January 31, 2023. Our ARR churn rate represents lost revenue from customers who no longer contributed revenue at the end of the current period but did contribute revenue in the equivalent prior year period. We generally bill monthly subscriptions monthly and subscriptions with terms of greater than one year annually in advance.”
Source: PagerDuty SEC Form 10-K for fiscal year ending January 31, 2025
Example 7
Enfusion Churn Rate Calculation
Enfusion is a vertical SaaS company that provides electronic trading software for investment managers. It offers hedge funds, mutual funds, and other investors an order execution and management system, portfolio accounting, and analytics. Enfusion was publicly traded on the NYSE until it was acquired by Clearwater Analytics in January 2025.
As a publicly trade company, Enfusion reported on two churn rate metrics to its investors – “revenue churn rate” and “adjusted revenue churn rate.” The company only reported on full cancellations of all products and not contractions (e.g., downgrades). The primary difference between Enfusion’s two metrics is that the “adjusted” rate excludes involuntary cancellations from companies going out of business.
Enfusion Revenue Churn Rate
“We calculate our Revenue Churn Rate by measuring the revenue contribution associated with clients that cancel all of their product and service agreements with us over the measurement year. This canceled revenue contribution for each such client is calculated as the revenues recognized for such clients over the trailing 12 months prior to the month in which the client canceled its product and service agreements. We then divide this canceled revenue contribution by the ARR calculated for the prior period to calculate our Revenue Churn Rate.
We also calculate an Adjusted Revenue Churn Rate which excludes all involuntary cancellations as described above…. We define involuntary cancellations as accounts that were canceled due to the client no longer being in business. We identify involuntary cancellations based on representations made by the client at the time of cancellation.”
Source: Enfusion SEC Form 10-K for fiscal year ending December 31, 2024
Example 8
Peloton Subscription Churn Rate Calculation
Peloton reports two churn metrics to its investors: 1) average net monthly paid connected fitness subscription churn and 2) average monthly paid app subscription churn. The “connected fitness” subscriptions are customers with a physical hardware product such as an exercise bike, treadmill, or guide. The app subscriptions are users who do not have a physical product, but just access Peloton’s training content library.
There are a few interesting things to note about how Peloton calculates its churn rate. First, Peloton reports churn ratio in terms of customer count versus using a revenue metric like MRR. Another interesting aspect of Peloton’s approach to churn is how it handles:
- Pause events – Peloton allows customers to pause their subscriptions for a few months instead of canceling. Subscriptions are automatically unpaused if the customer does not cancel.
- Reactivations – Customers who cancel their Peloton subscription and then resubscribe later are considered reactivations.
Peloton treats pauses and reactivations differently in its two different metrics. The connected fitness churn metric starts with the number of customers who cancel, then subtracts unpause and reactivation events. The app churn metric, however, treats reactivations as new customers and does not apply these accounts to the calculation.
Peloton Average Net Monthly Paid Connected Fitness Subscription Churn
“To align with the definition of Ending Paid Connected Fitness Subscriptions above, our quarterly Average Net Monthly Paid Connected Fitness Subscription Churn is calculated as follows: Paid Connected Fitness Subscriber “churn count” in the quarter, divided by the average number of beginning Paid Connected Fitness Subscribers each month, divided by three months. “Churn count” is defined as quarterly Connected Fitness Subscription churn events minus Connected Fitness Subscription unpause events minus Connected Fitness Subscription reactivations.
We refer to any cancellation or pausing of a subscription for our All-Access Membership as a churn event. Because we do not receive payment for paused Connected Fitness Subscriptions, a paused Connected Fitness Subscription is now treated as a churn event at the time the pause goes into effect, which is the start of the next billing cycle. An unpause event occurs when a pause period elapses without a cancellation and the Connected Fitness Subscription resumes, and is therefore counted as a reduction in our churn count in that period. Consistent with our previous practice, our churn count is shown net of reactivations and our new quarterly Average Net Monthly Paid Connected Fitness Subscription Churn metric averages the monthly Connected Fitness churn percentage across the three months of the reported quarter.
Prior to fiscal year 2024, we reported Average Net Monthly Connected Fitness Churn, which is defined as Connected Fitness Subscription cancellations, net of reactivations, in the quarter, divided by the average number of beginning Connected Fitness Subscriptions in each month, divided by three months. This metric does not treat a pause of a Connected Fitness Subscription as a churn event. When a Connected Fitness Subscription payment method fails, we communicate with our Members to update their payment method and make multiple attempts over several days to charge the payment method on file and reactivate the subscription. We cancel a Member’s Connected Fitness Subscription when it remains unpaid for two days after their billing cycle date.
Furthermore, we have reported our Average Net Monthly Connected Fitness Churn metric net of reactivations. Under this metric, a Connected Fitness Subscriber that cancels their membership (a churn event) and resubscribes in a subsequent period is considered a reactivation and is counted as a reduction in our churn count in the period during which the Subscriber resubscribes. These metrics do not include data related to our App One Subscribers and App+ Subscribers.”
Peloton’s Average Monthly Paid App Subscription Churn
“When a Subscriber to App One or App+ cancels their membership (a churn event) and resubscribes in a subsequent period, the resubscription is considered a new subscription (rather than a reactivation that is counted as a reduction in our churn count). Average Paid App Subscription Churn is calculated as follows: Paid App Subscription cancellations in the quarter, divided by the average number of beginning Paid App Subscriptions each month, divided by three months.”
Source: Peloton SEC Form 10-K for fiscal year ending June 30, 2024
