What churn rate measures
Churn rate is the share of customers who leave during a period. It is a central number for any subscription business, from software to gyms and streaming: winning customers is expensive, and a high churn rate quietly erases growth.
The formula
Churn rate = customers lost during the period ÷ customers at the start of the period
Retention rate = 1 − churn rate
New customers acquired during the period are not counted in the churn rate, so that marketing success does not hide the loss of existing customers.
Example
You start the month with 1,000 customers, lose 50 and win 80:
- churn rate: 50 ÷ 1,000 = 5% per month;
- retention: 95%;
- customers at the end: 1,030, a net growth of 3%.
Monthly and annual churn
Churn compounds, so annual churn is not simply 12 times monthly churn:
Annual churn = 1 − (1 − monthly churn)¹²
At 5% a month, the annual churn is 1 − 0.95¹² ≈ 46%, not 60%. The calculator converts quarterly or annual figures to an equivalent monthly rate the same way.
Customer lifetime
When churn is roughly constant, the average customer lifetime is:
Lifetime = 1 ÷ monthly churn
At 5% a month, a customer stays about 20 months. Multiplied by the average monthly revenue per customer, here $50, it gives about $1,000 of revenue per customer. Use the customer lifetime value calculator to include gross margin and acquisition cost.
Benchmarks
| Business | Typical monthly churn |
|---|---|
| Enterprise B2B software | under 1% |
| Mid-market B2B software | 1% to 2% |
| Small-business software | 3% to 5% |
| Consumer subscriptions | 5% to 10% |
Reducing churn
- Track churn by cohort (month of sign-up): early churn usually points to onboarding problems.
- Separate voluntary churn (cancellations) from involuntary churn (failed payments, often fixed with card updaters and reminders).
- Ask leaving customers why, and follow up on the top reasons.
- Look at revenue churn too: losing a few large accounts can hurt more than many small ones.