Unit Economics
Churn Rate
Churn rate is the percentage of customers (or revenue) you lose in a given period. Logo churn counts customers; revenue churn counts dollars.
Also known as: churn rate, customer churn, revenue churn
Why it matters
Churn is the leak in the bucket. You can pour new customers in the top, but if they drain out the bottom you never fill it, and growth stalls no matter how good acquisition gets. Churn also quietly sets your LTV: lower churn means longer lifetimes and more value per customer. High early churn is often the clearest signal that you have not actually found product-market fit yet.
Formula
Customer churn rate = customers lost in period / customers at start of period. Revenue churn uses MRR lost instead of customer count.
Worked example
Start the month with 200 customers and lose 10: the churn rate is 5 percent.
Common mistakes
- Reporting only customer churn while a few big accounts quietly drive revenue churn.
- Ignoring that net revenue retention can exceed 100 percent when expansion outpaces churn.
- Treating all churn the same instead of separating involuntary (failed payments) from voluntary.
Frequently asked questions
How do you calculate churn rate?
Divide customers lost in a period by customers at the start of the period. Revenue churn uses MRR lost instead of customer count. Both are usually measured monthly or annually.
What is the difference between customer churn and revenue churn?
Customer (logo) churn counts how many customers leave. Revenue churn counts how much recurring revenue leaves. A few large accounts can make revenue churn very different from logo churn.
What is a good churn rate?
For SMB SaaS, monthly churn of 3 to 5 percent is common; for enterprise it should be far lower, often low single digits annually. Lower is always better. Customer size and context matter a lot.
What is negative churn?
When expansion revenue from existing customers exceeds the revenue lost to cancellations, so your base grows even with no new customers. It shows up as net revenue retention above 100 percent and signals strong fit.
How do you reduce churn?
Improve onboarding and time-to-value, fix the reasons people leave, and catch failed payments (involuntary churn). Strong early activation is the biggest driver. You cannot grow if the bucket leaks.
Why is churn an early warning sign?
High early churn usually means weak product-market fit, not a marketing problem. If new customers leave quickly, pouring in more just wastes money. Fix retention before scaling acquisition.
Related terms
More in Unit Economics
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Last updated 2026-06-02 · Back to the glossary