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Churn Rate: How to Calculate It and How to Lower It

Churn rate explained: the formula for customer and revenue churn, monthly vs annual churn, how to find out why customers leave, and how to lower it.

6 min read

Churn rate is the share of customers you lose over a period. To calculate it, divide the customers who left during the period by the customers you had at the start, then multiply by 100. If you start the month with 200 customers and 6 cancel, your monthly churn rate is 3%.

Churn matters most for subscription businesses, because every customer you keep keeps paying. A small monthly churn rate compounds into a big number over a year, and it caps how fast you can grow.

What is churn rate?

Churn rate, also called attrition rate, measures how quickly customers stop doing business with you. Two kinds are worth tracking:

  • Customer churn (or logo churn): how many customers you lost.
  • Revenue churn: how much recurring revenue you lost. Losing your biggest customer hurts more than losing your smallest, and revenue churn shows it.

Track both. Customer churn tells you how many people leave. Revenue churn tells you what it costs.

How to calculate churn rate

Customer churn rate = customers lost during the period ÷ customers at the start of the period × 100

Example for one month:

Count
Customers on October 1200
New customers in October15
Customers who cancelled in October6
Customers on October 31209
Monthly churn rate6 ÷ 200 = 3%

Leave new customers out of the calculation. They weren't there at the start, so counting them would make churn look lower than it is. If a customer joins and cancels in the same month, count them in a separate "early churn" number: it usually points to an onboarding problem.

How to calculate revenue churn

Revenue churn uses your MRR instead of customer counts.

Gross revenue churn = (churned MRR + contraction MRR) ÷ MRR at the start × 100

Net revenue churn = (churned MRR + contraction MRR - expansion MRR) ÷ MRR at the start × 100

Example: you start the month with $50,000 of MRR. Customers who cancel take $1,500 with them, downgrades cost $500, and upgrades add $2,500.

  • Gross revenue churn = ($1,500 + $500) ÷ $50,000 = 4%
  • Net revenue churn = ($1,500 + $500 - $2,500) ÷ $50,000 = -1%

A result below zero is called negative churn: upgrades from the customers you kept more than made up for what you lost. It's the strongest sign that customers get more value over time.

Monthly vs annual churn

Monthly churn compounds, so you can't multiply it by 12. Use this instead:

Annual churn = 1 - (1 - monthly churn)¹²

Monthly churnCustomers left after 12 months, out of 100Annual churn
1%8911.4%
2%7821.5%
3%6930.6%
5%5446.0%

At 3% a month, you lose almost a third of your customers in a year, and you need that many new ones just to stay the same size.

Churn rate vs retention rate

Retention rate is the other side of churn. For the same group of customers over the same period:

Retention rate = 100% - churn rate

A 3% monthly churn rate is a 97% monthly retention rate. Many software companies also track net revenue retention (NRR): the MRR you have today from the customers you had a year ago, divided by what they paid then. Above 100% means upgrades outgrew cancellations.

What is a good churn rate?

It depends on who you sell to. Companies that sell monthly plans to small businesses usually see higher churn than those selling annual contracts to large companies, because small businesses close, switch tools and cut costs more often.

Instead of chasing an industry average, compare yourself with your own last quarters, by plan and by type of customer. A churn rate that drops every quarter is a good churn rate.

Churn rate analysis: find out why customers leave

The churn rate tells you that customers leave. The analysis tells you why. Look at churn from a few angles:

  • By signup month (cohort). Do customers who joined in March leave faster than those from January? Something you changed in between might explain it.
  • By plan or price. If your cheapest plan churns twice as fast, it may attract customers who aren't a fit.
  • By how far they got in onboarding. Customers who never finished setting up are the most likely to leave.
  • By support history. Slow or unanswered conversations before a cancellation point to a support problem.
  • By reason. Ask every customer who cancels why, in one short question, and tag the answer.

Common reasons, roughly in the order they're worth fixing:

  1. They never got value. Onboarding was too slow or too vague.
  2. Support was slow, or they couldn't find answers on their own.
  3. A missing feature that mattered to them.
  4. Price, often a sign they didn't use enough of the product.
  5. Their champion left, and nobody else knew why they paid for you.
  6. A failed payment, such as an expired card. This is called involuntary churn, and it's the easiest to fix.

How to reduce churn

  1. Onboard every new customer with a plan. A checklist with dates and an owner, from kickoff to the first result. Our client onboarding guide has one to copy.
  2. Answer fast. Put a help center on your website and a chat bot that answers from it, and hand anything it can't answer to a person.
  3. Ask how it's going. A one-question survey after you close a support conversation catches unhappy customers while you can still help. Our guide to the NPS score explains how.
  4. Follow up after every meeting. Turn next steps into tasks with a date, so promises don't slip.
  5. Watch renewals and failed payments. Remind customers before a renewal, and fix failed payments the same day.
  6. Talk to customers who leave. Some come back when the missing piece ships.

Track churn without another tool

Churn work usually spreads across a billing tool, a help desk, a survey tool and a CRM. Alori is the all-in-one app where they sit together:

  • Deals with MRR. Add the products and billing frequency to each deal, and use your own stages, such as Trial, Paid and Churned, to see what you lost each month.
  • Onboarding projects. Start a project for each new customer and keep the tasks Alori suggests. See customer onboarding.
  • Support that answers itself. A help center, a website chat bot that answers from it, and tickets with a response time per priority. See help desk.
  • Surveys after support. A short survey goes out when you close a conversation, and unhappy answers come back to your team.
  • Recorded meetings with a transcript and a summary, so the next person knows what was promised.

A customer health score is coming soon, with the customer success app.

Frequently asked questions

What is the formula for churn rate?

Churn rate = customers lost during a period ÷ customers at the start of the period × 100. For revenue churn, use the MRR lost to cancellations and downgrades instead of customer counts.

Do new customers count in churn rate?

No. Only count customers who were there at the start of the period. Track customers who join and leave in the same period as early churn.

Is churn rate monthly or annual?

Both are common. Businesses on monthly plans usually track it monthly. To turn monthly churn into annual churn, use 1 - (1 - monthly churn)¹², not monthly churn × 12.

What is negative churn?

Negative churn means upgrades and add-ons from existing customers brought in more revenue than you lost to cancellations and downgrades. Your revenue from existing customers grows before you sign anyone new.

What is involuntary churn?

Involuntary churn is a customer lost to a failed payment, such as an expired or declined card, rather than a decision to leave. Payment reminders and an easy way to update the card fix most of it.

Keep the customers you worked to win

See your MRR, support conversations, survey answers and onboarding tasks in one app. Alori is free to start, with no credit card. Build your app now.

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