Monthly Churn Rate % = (Customers Lost / Starting Customers) x 100
Annualised Churn % = 100 - (1 - monthly churn%)^12 x 100
Monthly Retention % = 100 - Monthly Churn %
Average Lifetime = 12 months / (Monthly Churn % / 100)
Churn rate measures the percentage of customers you lose each month. Retention is 100% minus churn. Annualised churn is what your monthly rate compounds to over 12 months, accounting for the fact that each month you also add new customers.
A worked example
1,000 customers at start, 50 lost, 80 added during the month:
- Monthly churn = (50 / 1,000) x 100 = 5%
- Monthly retention = 100 - 5 = 95%
- Annualised churn = 100 - (0.95^12) x 100 = 46% (if this rate holds for a year)
- Average customer lifetime = 12 / 0.05 = 240 months or 20 years
- End-of-month customers = 1,000 - 50 + 80 = 1,030
A 5% monthly churn is healthy. Over a year, 46% of the starting cohort is gone if retention does not improve, but you are adding 80 customers per month (likely new ones partially offset this).
Churn rate benchmarks by business model
Healthy monthly churn rates vary widely:
- High-end SaaS (5,000+ ACV): 1% to 3% monthly is typical. Lower because switching costs are high.
- Mid-market SaaS: 2% to 5% monthly. Users can move to competitors more easily.
- Low-end SaaS or freemium: 5% to 15% monthly. Users try free, convert or leave quickly.
- Subscription e-commerce: 3% to 8% monthly depending on product category (fitness 5% to 8%, meal kits 10%+).
- Marketplace or platform: 7% to 15% monthly. High variability based on how sticky the ecosystem is.
A 1% monthly churn (87% annual) is exceptional. A 3% monthly churn (32% annual) is healthy for most businesses. Above 5% monthly, retention is the key metric to improve.
How to reduce churn
Measure before you act. Know where customers are leaving:
- Segmentation. Churn is often not uniform. New customers might churn at 8%, power users at 1%. Fix the segment with the highest churn first.
- Involuntary vs voluntary. Involuntary (payment failure, hard stop) is easy to fix. Voluntary (better product elsewhere) requires feature or positioning changes.
- Reasons at exit. Survey customers who leave. Most will tell you the real reason. Use the 3 most common to prioritise fixes.
- Early warning signals. Decreased usage, support tickets, or feature usage often predict churn 1 to 2 months ahead. Use those as triggers for intervention.
- Test interventions small. Discounts reduce churn but train customers to expect them. Product improvements or feature launches often work better long-term.
Questions people ask
What is the difference between monthly and annual churn?
Monthly churn is the percentage you lose in a single month. Annual churn is what happens if that rate continues for 12 months (it compounds). A 5% monthly rate becomes 46% annualised.
Should I include downgrrades as churn?
No. Downgrade is contraction, tracked separately. Churn means full cancellation. Both matter: churn ends the customer, contraction reduces revenue. Track both.
Is negative churn possible?
Yes. Negative churn means you lose fewer customers than you would at 0%, which happens when you retain existing customers and they spend more over time (upsell/expansion). Very positive sign if LTV is growing.
How often should I measure churn?
Monthly, always from the same day of the month. Track 3 to 12 months to see trend. A single month is noise. Three months gives signal. A year gives confidence.
Can high churn be offset by cheap acquisition?
Temporarily, no. If churn is 10% and new customer CAC is $1,000, you burn through customers while spending heavily. At some point, acquisition growth stalls and churn dominates. Fix churn first, then scale acquisition.
Last reviewed 11 September 2026. Formulas and benchmarks are published on the page so you can check them. This tool gives estimates, not quotes.
