--- title: "Churn Rate" description: "Churn rate is the percentage of customers or revenue a company loses over a specific period. It is a critical metric for SaaS billing." url: "https://ordwaylabs.com/resources/glossary/churn-rate/" type: "Post" publisher: "Ordway" language: "en-US" published: "2025-09-12T09:58:46+00:00" updated: "2026-02-24T02:12:08+00:00" author: "Ordway Labs" categories: - "C" - "Glossary" --- # Churn Rate ### What is Churn Rate? **Churn rate** (also known as *customer churn rate*, *attrition rate*, or *customer turnover*) is the percentage of customers—or, in some cases, revenue—that a company loses during a defined period of time. It’s a fundamental metric in subscription-based and SaaS (Software as a Service) business models. ![definition of churn rate saas metric](/wp-content/uploads/2025/09/churn-rate-glossary-definition-768x432.jpeg) ### Types of Churn **Customer vs Revenue Churn Rate**: * **Customer Churn Rate**: The proportion of customers who stop using a service or fail to renew their subscription within a given period. * **Revenue Churn Rate**: The percentage of recurring revenue lost due to customer cancellations or downgrades. **Gross vs. Net Churn**: * **Gross Churn**: Total customers or revenue lost, without considering any upsells or expansions. * **Net Churn**: Net loss considering both churn and additional revenue from up-sells or cross-sells. **Voluntary vs. Involuntary Churn**: * **Voluntary churn** happens when customers actively cancel due to dissatisfaction about product functionality, return on investment, the customer experience, or a change in business strategy. * **Involuntary churn** occurs due to reasons like payment failures, financial distress, or corporate bankruptcy. Involuntary churn cannot be controlled by the subscription provider or SaaS company. ### How to Calculate Churn Rate **Customer Churn Rate**: can be calculated using this basic formula: Churn Rate (%) = (Number of Customers Lost ÷ Total Customers at Start of Period) × 100 For example, if you start a month with 500 subscribers and lose 50, your churn rate is: (50 ÷ 500) × 100 = 10% **Revenue Churn Rate** follows a similar approach but focuses on monetary value instead of customer count. Revenue Churn Rate (%) = (Revenue Lost ÷ Total Revenue at Start of Period) x 100 Note that the revenue used in the equation can be GAAP revenue or ARR (annual recurring revenue). ### Why Churn Rate Matters Churn rate is one of the most closely monitored SaaS metrics by venture capital, growth equity, and private equity firms, because it is indicative of: * **Indicator of Business Health:** A rising churn rate signals potential issues in product quality, pricing, customer satisfaction, or competition. * **Financial Impact:** High churn increases CAC (Customer Acquisition Cost) payback period and erodes revenue predictability and lifetime value. Churn directly affects metrics like Net Revenue Retention (NRR) and is a key impediment to sustainable growth. ### Why Users Should Care * **Simplicity & Relevance**: Churn rate provides an immediate snapshot of retention dynamics—simple to calculate, powerful in insight. * **Strategic Leverage**: Tracking different churn types (customer vs. revenue, gross vs. net) allows businesses to spot root causes and fine-tune pricing, product, and customer success strategies. * **Investor and Board Metrics**: A healthy churn rate is a strong indicator of business resilience and customer satisfaction—vital for forecasting, investment, and performance evaluations. ### How to Improve Churn * **Segment the Churn**: Identify customer vs. revenue churn, gross vs. net, and voluntary vs. involuntary. * **Identify Triggers**: Track early warning signals such as late payments, low user adoption, implementation delays, or support ticket volume. * **Customer Interventions**: Have the customer success team engage accounts demonstrating early warning signs to address issues before churn. * **Address Root Causes**: Identify trends in historical churn. Fix product functionality gaps. Improve customer experience. * **Measure by Cohort**: Track churn rates and root causes monthly at an executive level to ensure patterns are improving. ### Benchmarks & Industry Norms Churn rates vary widely within the SaaS industry in correlation with the size of customer the software is sold to and the maturity of the organization selling: * **Mature SaaS Businesses**: Annual customer churn: generally between 5%–7%. Monthly churn: ideally under 1%. * **Early-Stage Startups / SMBs**: More volatile churn; monthly rates of 10%–15% are not uncommon. * **SMB-focused SaaS**: Typical monthly churn ranges between 3%–7%. * **Enterprise SaaS**: Better retention; churn rates may be as low as 1% monthly due to high switching costs and contract structures. ## Other Glossary Terms July 16, 2025 in [Glossary](/category/resources/glossary/), [S](/category/resources/glossary/s/) ### Subscription Pause What is a Subscription Pause? 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