How to Calculate Churn Rate: Every Formula SaaS Founders Need (With Examples)

You can't fix what you don't measure. And when it comes to SaaS growth, churn rate is the metric that separates companies that scale from those that stall. Yet most founders either calculate churn incorrectly or track only the most basic version of it.

There are multiple ways to calculate churn, and each tells a different story about your business. Customer churn, revenue churn, gross churn, net churn, monthly, annual, and cohort-based. Knowing how to calculate churn rate the right way for your situation is essential for making smart decisions about retention.

In this guide, we walk through every churn rate formula you need as a SaaS founder, with clear step-by-step examples. Whether you're calculating churn for your board deck, investor pitch, or just trying to figure out where you stand, you'll find the right formula here.

At MRRSaver, we track churn obsessively because it's the foundation of everything we build. Understanding how to calculate churn is the first step toward reducing it.

How to Calculate Customer Churn Rate

Customer churn rate is the most fundamental churn metric. It measures the percentage of customers who cancel their subscriptions during a specific period. The customer churn formula is straightforward:

Customer Churn Rate = (Customers Lost During Period / Customers at Start of Period) x 100

A critical detail: only count customers who existed at the start of the period. New customers acquired during the month should not be included in your denominator. This is a common mistake that artificially deflates your churn rate and gives you a false sense of security.

Customer Churn Calculation Example

Let's say your SaaS starts February with 800 paying customers. During the month, you acquire 50 new customers. By the end of February, you have 810 total customers. Here's how to calculate customer churn:

1. Start with customers at the beginning: 800
2. Calculate expected end: 800 + 50 new = 850 expected
3. Actual end: 810 customers
4. Customers lost: 850 - 810 = 40 churned
5. Churn rate: 40 / 800 x 100 = 5.0% monthly churn

Notice we divided by the 800 starting customers, not the 810 ending customers or the 850 total. This is the correct way to calculate the churn rate. Using the wrong denominator is the most frequent customer churn calculation error.

How to Calculate Revenue Churn Rate

Customer churn treats every customer equally, but a $5,000/month enterprise account leaving hurts far more than a $29/month user canceling. That's why revenue churn is often the more important metric for SaaS businesses with variable pricing. The churn formula for revenue churn focuses on MRR:

Gross Revenue Churn Rate = (MRR Lost from Cancellations + MRR Lost from Downgrades) / Starting MRR x 100

Revenue Churn Calculation Example

Your SaaS starts March with $50,000 MRR. During the month, you lose $1,500 from cancellations and $500 from downgrades. Here's how do you calculate churn rate based on revenue:

• Total MRR lost: $1,500 (cancellations) + $500 (downgrades) = $2,000
• Gross revenue churn rate: $2,000 / $50,000 x 100 = 4.0%

This tells you 4% of your starting MRR disappeared that month. But there's a more complete picture available when you factor in expansion revenue, which brings us to net churn.

How to Calculate Net MRR Churn Rate

Net MRR churn rate accounts for both losses and expansion revenue from existing customers, including upgrades, seat additions, and cross-sells. The churn rate calculation formula for net churn is:

Net MRR Churn Rate = (Churned MRR - Expansion MRR) / Starting MRR x 100

Net Churn Calculation Example

Using the same $50,000 MRR example, now include $800 in expansion revenue from existing customers upgrading their plans:

• Churned MRR: $2,000 (cancellations + downgrades)
• Expansion MRR: $800 (upgrades from existing customers)
• Net MRR churn: ($2,000 - $800) / $50,000 x 100 = 2.4%

When expansion MRR exceeds churned MRR, your net churn rate goes negative. This is the holy grail for SaaS businesses because it means your existing customers are generating more revenue over time even without acquiring new ones. About 40% of SaaS companies above $15M ARR achieve negative net churn.

Churn Rate vs Retention Rate: How They Relate

Churn rate and retention rate are two sides of the same coin. Calculating churn tells you what you lost. Retention rate tells you what you kept. The formula for churn rate conversion to retention is simple:

Retention Rate = 100% - Churn Rate

If your monthly churn rate is 4%, your monthly retention rate is 96%. Both metrics give insights into customer satisfaction, but they frame the story differently. Investors and board members often prefer to see retention rate because it's a positive metric, while churn rate puts the spotlight on what's broken.

For SaaS, there's an important distinction between customer retention and revenue retention. Your customer retention rate might be 96%, but your net revenue retention could be 105% if remaining customers expand their usage. Always track both to get the full picture.

How to Convert Monthly Churn to Annual Churn Rate

One of the most common mistakes in how to calculate the churn rate annually is simply multiplying monthly churn by 12. A 5% monthly churn rate does not mean 60% annual churn. Because churn compounds, each month you're losing a percentage of a shrinking base. The correct churn calculation formula for annual conversion is:

Annual Churn Rate = 1 - (1 - Monthly Churn Rate)^12

Here's how different monthly rates translate to annual churn when you account for compounding:

• 1% monthly: 11.4% annual (not 12%)
• 3% monthly: 30.6% annual (not 36%)
• 5% monthly: 46.0% annual (not 60%)
• 8% monthly: 63.2% annual (not 96%)
• 10% monthly: 71.8% annual (not 120%)

The compounding math works in your favor when you improve retention. Reducing monthly churn from 5% to 3% doesn't just save 2% per month. It saves over 15 percentage points on your annual rate. That's the power of compounding applied to retention.

How Churn Rate Impacts LTV and CAC Payback

Understanding how to calculate churn rate matters because churn directly controls your customer lifetime value (LTV) and how long it takes to recoup your acquisition costs. The relationship is inverse and dramatic:

Average Customer Lifetime (months) = 1 / Monthly Churn Rate

At 2% monthly churn, your average customer sticks around for 50 months. At 5% monthly churn, that drops to just 20 months. At 10% monthly churn, you only have 10 months. If your product costs $100/month and your customer acquisition cost is $500, here's what different churn rates mean for profitability:

• 2% monthly churn: LTV = $5,000. CAC payback in 5 months. LTV/CAC ratio = 10x.
• 5% monthly churn: LTV = $2,000. CAC payback in 5 months. LTV/CAC ratio = 4x.
• 10% monthly churn: LTV = $1,000. CAC payback in 5 months. LTV/CAC ratio = 2x.

A healthy SaaS business typically targets an LTV/CAC ratio of at least 3x. Once churn pushes your LTV too low, your business model breaks down regardless of how much you spend on acquisition.

How to Calculate Churn Using Cohort Analysis

Average churn rates hide critical patterns. Cohort analysis groups customers by a shared characteristic, most commonly their signup month, and tracks how each group retains over time. This reveals whether your retention is actually improving, getting worse, or staying flat.

To build a basic cohort analysis, follow these steps:

1. Define your cohorts. Group customers by signup month. January signups are one cohort, February another, and so on.
2. Track retention at each interval. For each cohort, calculate what percentage remains after 1 month, 2 months, 3 months, etc.
3. Compare cohorts. Plot the retention curves on the same graph. If newer cohorts show flatter curves (slower decline), your retention efforts are working.
4. Identify patterns. Look for spikes in churn at specific intervals. Many SaaS products see a spike after month 1 (failed onboarding) and another at month 12 (annual renewal decisions).

Beyond acquisition cohorts, consider behavioral cohorts. You might discover that customers who complete onboarding in 48 hours retain 80% better, or that users from a specific marketing campaign churn 3x faster than organic signups. These insights are impossible to see in a flat churn rate number.

Don't Forget Involuntary Churn in Your Calculation

When calculating churn, most founders focus on voluntary cancellations but overlook involuntary churn: customers who leave because a payment failed, not because they chose to cancel. Nearly half of all SaaS churn is involuntary, caused by expired credit cards, bank declines, or temporary payment issues.

Your total churn rate should include both types. But tracking them separately is just as important because the solutions are completely different. Voluntary churn requires product improvements, better onboarding, or retention offers. Involuntary churn requires automated payment recovery through smart retries, dunning emails, and card update pages.

At MRRSaver, we've seen SaaS companies reduce their total churn rate by 20-40% just by fixing involuntary churn. It's the fastest, highest-ROI improvement most founders can make. Smart dunning systems can recover 50-80% of failed payments automatically, no product changes needed.

Start Calculating Your Churn Rate Today

Knowing how to calculate churn rate accurately is the foundation of any retention strategy. Start with customer churn for the big picture, add revenue churn for the financial impact, and use net MRR churn to understand your true growth dynamics. Layer in cohort analysis to find the patterns hiding in your averages.

And remember: the fastest way to improve your churn numbers is almost always recovering failed payments. It's revenue you've already earned from customers who want to stay.

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