Churn rate is the percentage of customers who stop using your product during a given time period. It's one of the most critical metrics for subscription businesses—a direct measure of customer retention and product-market fit.

How to Calculate Churn

Customer churn rate: (Customers lost in period / Customers at start of period) × 100

Example: Started month with 1,000 customers, lost 50 Churn rate = (50/1,000) × 100 = 5% monthly churn

Revenue churn rate: (MRR lost in period / MRR at start of period) × 100

Example: Started with $100k MRR, lost $5k Churn rate = (5,000/100,000) × 100 = 5% monthly revenue churn

Why Both Metrics Matter

You can lose fewer customers but more revenue (enterprise customers churning), or more customers but less revenue (small customers churning).

Customer churn matters for growth trajectory and unit economics.

Revenue churn matters for business sustainability and profitability.

Track both. They tell different stories.

What's a Good Churn Rate?

SaaS benchmarks (monthly):

• Consumer/SMB: 5-7% acceptable, 3-5% good, <3% excellent
• Mid-market: 3-5% acceptable, 1-2% good, <1% excellent
• Enterprise: <1% monthly (most measure annually)

Annual churn:

• Consumer/SMB: 30-50% (meaning some customers stay just 2 years)
• Mid-market: 15-25%
• Enterprise: 5-10%

Revenue churn can be negative if expansion from existing customers exceeds churn. Net Revenue Retention >100% means you're growing revenue from existing customers even with some churn.

Why Customers Churn

Poor product-market fit: Product doesn't solve their problem well enough

Lack of value realization: They're not achieving desired outcomes

Poor onboarding: Never learned to use product properly

Product problems: Bugs, performance issues, missing features

Price vs. value: Doesn't justify the cost

Better alternatives: Competitor offers more value or better fit

Business changes: Their situation changed (went out of business, changed strategy, etc.)

Poor customer experience: Support issues, bad interactions, friction

Lack of engagement: Stopped using product, forgot about it

Churn and Feedback

Churn is the ultimate feedback—customers voting with their wallet. But feedback during the customer lifecycle predicts and prevents churn:

Early warning signs in feedback:

• Frustration increasing
• Support ticket volume rising
• Feature requests becoming demands
• Language changes ("This should work" → "This is unacceptable")
• Reduced engagement in feedback channels

Exit feedback: Churn surveys asking why customers left. Reveals patterns but comes too late to save that customer.

Retention feedback: Regular check-ins with at-risk customers. Opportunity to address issues before they churn.

The best companies don't wait for churn surveys—they instrument feedback throughout the customer journey to spot churn risk early.

How to Reduce Churn

Improve onboarding: Get customers to "aha moment" faster. Many customers churn before ever getting value.

Drive adoption: Customers who use core features churn less. Focus on activation.

Proactive success: Identify at-risk customers early and intervene.

Fix product issues: Most churn is product problems in disguise. Systematic feedback analysis reveals patterns.

Better customer fit: Stop signing customers who aren't good fits. They'll churn anyway.

Increase switching costs (but ethically): Integration depth, data lock-in, workflow dependency. Make it hard to leave because you're valuable, not because you're holding them hostage.

Build relationships: Customers churn from products. They're less likely to churn from relationships.

The Churn Curve

Customers are most likely to churn:

• Month 1-3: Before experiencing full value (onboarding churn)
• Month 3-6: After initial excitement wears off (value realization churn)
• Contract renewal: Annual contracts churn at renewal time

Each phase requires different retention strategies and different types of feedback analysis.

Churn vs. Expansion

You can grow even with high churn if expansion revenue exceeds churn revenue.

Net Revenue Retention (NRR) = (Starting MRR + Expansion - Churn) / Starting MRR

• NRR <100%: Shrinking revenue from customer base
• NRR = 100%: Flat, expansion offsets churn exactly
• NRR >100%: Growing revenue from existing customers

Top SaaS companies have NRR of 120%+, meaning they grow 20% annually from existing customers alone, even with some churn.

Acceptable vs. Unacceptable Churn

Acceptable churn: Small customers who outgrow your product (downmarket churn), customers whose business closed (unavoidable), customers who were bad fit (should've never signed).

Unacceptable churn: Ideal customers leaving because of product problems, missed expectations, poor experience, or competitor advantages.

If your best customers are churning, you have a serious problem. If your worst customers are churning, that's often healthy.