Churn Rate & Retention Calculator
How to Calculate a Churn Rate
Understanding customer attrition is critical for any subscription-based business, SaaS company, or service provider. The churn rate represents the percentage of customers who stop using your product or service during a given time frame. It is arguably one of the most important metrics for assessing the long-term health of a business.
The Churn Rate Formula
The standard formula for calculating churn rate is straightforward. It compares the number of customers lost to the total number of customers you had at the beginning of the period.
For example, if you started the month with 500 customers and lost 25 of them by the end of the month, your calculation would be:
- Start Customers: 500
- Lost Customers: 25
- Calculation: (25 / 500) = 0.05
- Result: 5% Churn Rate
Related Metrics: Retention and Growth
While churn tells you who left, it is equally important to understand who stayed and how your overall base is changing.
Retention Rate
The retention rate is the inverse of churn. It measures the percentage of customers who remained active. If your churn rate is 5%, your retention rate is 95%. High retention indicates high customer satisfaction and product stickiness.
Net Growth Rate
Churn doesn't happen in a vacuum; you are likely acquiring new customers simultaneously. The Net Growth Rate takes both acquisition and attrition into account:
Net Growth = ((New Customers – Lost Customers) / Start Customers) × 100
Even with high churn, a business can grow if acquisition outpaces attrition, though high churn usually signals a "leaky bucket" problem that makes growth expensive and inefficient.
Why is Churn Rate Important?
Tracking churn allows businesses to:
- Forecast Revenue: Knowing your churn helps predict Monthly Recurring Revenue (MRR) and Lifetime Value (LTV).
- Evaluate Product Health: A sudden spike in churn often indicates a problem with a recent update, pricing change, or service outage.
- Calculate CAC Payback: If customers churn before you recoup their Customer Acquisition Cost (CAC), the business model may be unsustainable.
Frequently Asked Questions
What is a "good" churn rate?
This varies widely by industry. For B2B SaaS targeting enterprise clients, a monthly churn rate below 1% is excellent. For B2C subscription services (like streaming), monthly churn rates between 3% and 7% are common. Early-stage startups often experience higher volatility.
Should I include new customers in the denominator?
In the standard "simple" churn formula used above, new customers acquired during the month are generally excluded from the denominator (the starting count). Including them can dilute the churn percentage artificially. However, for average churn calculations over long periods, some analysts use the average number of customers ((Start + End) / 2) as the denominator.
What is Negative Churn?
Negative churn occurs when the revenue gained from existing customers (through upsells, cross-sells, or upgrades) exceeds the revenue lost from cancellations. This is the "holy grail" of SaaS, as it means the business grows revenue even without acquiring a single new customer.