# Churn Rate

_Also known as: customer churn, attrition rate_

**Category:** Metrics
**URL:** https://skiporship.com/glossary/churn-rate
**Last updated:** 2026-08-08

## Definition

Churn rate is the percentage of customers (or revenue) lost over a given period. It determines how much new business you must win simply to stand still.

## What it means in practice

Churn is the most consequential number in a subscription business because it silently sets a ceiling on how large you can become. At 5% monthly churn you lose roughly half your customers each year, so growth requires replacing that half before adding anyone new. The higher the churn, the more of your acquisition effort is spent standing still.

Customer churn and revenue churn tell different stories and both are worth tracking. Losing many small accounts hurts customer churn while barely moving revenue; losing one large account does the reverse. Net revenue churn also accounts for expansion within existing accounts, which is why strong businesses can have negative net churn — growing revenue without adding a single customer.

Benchmarks vary sharply by segment. SMB SaaS commonly runs 3–7% monthly because small businesses fail and switch often. Enterprise SaaS typically sits under 1% monthly, since contracts are annual and switching is disruptive. Comparing your churn against the wrong segment produces false comfort or false alarm.

## Formula

```
Monthly churn rate = (customers lost in month ÷ customers at start of month) × 100
```

Track revenue churn alongside customer churn — losing ten small accounts and one large one are very different events.

## Worked example

A SaaS business starting the month with 500 customers.

- Customers at start of month: 500. Customers lost: 25.
- Monthly churn = 25 ÷ 500 = 5%.
- Implied average customer lifetime = 1 ÷ 0.05 = 20 months.
- To grow at all, more than 25 new customers must be won every month.

**Takeaway:** At 5% monthly churn the business must replace 300 customers a year before growing. Halving churn to 2.5% doubles average lifetime and doubles LTV without winning a single extra customer.

## Common mistakes

- Comparing your churn to benchmarks from a different segment — SMB and enterprise churn differ by an order of magnitude.
- Tracking only customer churn and missing that revenue is concentrated in a few accounts.
- Measuring churn too early, when a launch cohort has not yet had time to lapse.
- Treating churn as a retention-team problem when it usually originates in who you sold to.

## Related tool

[LTV calculator](https://skiporship.com/calculators/ltv)

## Related terms

- [Customer Lifetime Value](https://skiporship.com/glossary/customer-lifetime-value) — Customer lifetime value (LTV) is the total gross profit you expect to earn from a single customer across the whole of their relationship with you, before the cost of acquiring them.
- [Net Revenue Retention](https://skiporship.com/glossary/net-revenue-retention) — Net revenue retention (NRR) measures how revenue from an existing cohort of customers changes over a year, including upgrades, downgrades and cancellations but excluding new customers. Above 100% means the cohort grows on its own.
- [Cohort Analysis](https://skiporship.com/glossary/cohort-analysis) — Cohort analysis groups customers by when they joined and tracks each group's behaviour over time, revealing retention and revenue patterns that aggregate metrics hide.
- [Product-Market Fit](https://skiporship.com/glossary/product-market-fit) — Product-market fit is the point where a product satisfies a real, urgent demand well enough that customers adopt it, keep using it, and tell others — so growth starts pulling rather than being pushed.

## FAQ

**What is a good churn rate?**

For SMB SaaS, under 5% monthly is workable and under 3% is strong. For enterprise SaaS, monthly churn should generally sit below 1%. Consumer subscriptions tolerate higher churn but need correspondingly cheaper acquisition.

**How does churn affect lifetime value?**

Directly and severely — average customer lifetime is one divided by churn rate. Halving churn doubles lifetime and therefore doubles LTV, which is usually a far larger lever than raising prices.

**What is negative churn?**

Negative net revenue churn occurs when expansion revenue from existing customers exceeds revenue lost to cancellations, so total revenue from a cohort grows over time even without new customers.

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