How to Calculate Churn Rate (Customer Churn and Revenue Churn)

Churn is the rate at which customers or revenue leave your subscription over a period. It is the leak in the bucket: you can pour new customers in the top, but if the bottom leaks fast enough you never fill up. Calculating churn correctly is the difference between a business that compounds and one that runs on a treadmill.

Customer churn vs revenue churn

There are two families of churn, and they answer different questions. Customer churn counts people leaving. Revenue churn counts dollars leaving. They can diverge sharply: if you lose five customers on your cheapest plan but keep your enterprise account, customer churn looks bad while revenue churn barely moves. Track both, because each hides what the other reveals.

The customer churn formula

Customer churn rate = (customers lost during the period) / (customers at the start of the period). If you began the month with 200 customers and 8 cancelled, your monthly customer churn is 8 / 200 = 4%. The key discipline is to use the count at the start of the period as the denominator, and to exclude new customers acquired mid-period so you are measuring retention of the cohort you began with.

The revenue churn formula

Gross revenue churn = (MRR lost from cancellations and downgrades during the period) / (MRR at the start of the period). Say you started the month at $5,000 MRR and lost $300 to cancellations plus $100 to downgrades. Gross revenue churn is $400 / $5,000 = 8%. Gross churn only ever counts losses; it never nets in gains.

Net revenue churn does net in gains — specifically, expansion revenue from existing customers upgrading. Net revenue churn = (MRR lost minus expansion MRR) / (starting MRR). If that same month you also gained $600 from existing customers upgrading, net churn is ($400 - $600) / $5,000 = -4%. A negative number here is not a bug.

Net negative churn — the holy grail

When expansion from existing customers outweighs everything you lose, net revenue churn goes negative — meaning your existing customer base grows revenue on its own, even if you never acquire a single new customer. This is the strongest signal in SaaS. It usually comes from seat-based or usage-based pricing where happy customers naturally spend more over time.

• Customer churn = customers lost / customers at start.
• Gross revenue churn = MRR lost / MRR at start (losses only).
• Net revenue churn = (MRR lost - expansion MRR) / MRR at start.
• Annual churn is roughly monthly churn compounded, not multiplied by 12 — 5% monthly is about 46% annually, not 60%.

A common calculation trap

Do not convert monthly churn to annual by multiplying by 12 — churn compounds. If 5% of your remaining customers leave each month, after a year you retain 0.95 to the twelfth power, about 54%, so annual churn is roughly 46%. Multiplying would have told you 60%, overstating the damage. Get the compounding right and your retention projections stop lying to you.