What Is Churn Rate? The Complete Guide for SaaS Founders

Your churn rate tells you how fast you're losing customers — and, more importantly, how long your SaaS can survive at its current trajectory. It's a number that every founder should know off the top of their head, yet many don't start tracking it until the damage is already done.

When building MRRSaver, we spent months talking to SaaS founders who were bleeding revenue without realizing it. The pattern was almost always the same: they focused on acquisition, ignored retention, and woke up one day wondering why growth had stalled. The culprit? Churn.

This guide covers everything you need to know about churn rate — what it is, how to calculate it, what benchmarks to aim for, and the concrete steps you can take to bring it down. No fluff, no theory for theory's sake. Just the practical playbook that SaaS founders actually need.

What Is Churn Rate?

Churn rate is the percentage of customers who stop using your product or cancel their subscription during a given period. If you start a month with 200 customers and 10 of them cancel, your monthly churn rate is 5%.

So what is churn rate in business terms? It's the inverse of retention. While retention tells you how many customers stick around, churn tells you how many walk away. For subscription businesses — SaaS in particular — this metric is existential. Every churned customer is recurring revenue you've permanently lost.

The concept is straightforward, but there are important nuances. Churn rate can refer to customer churn (how many accounts you lose) or revenue churn (how much MRR you lose). These are related but very different numbers, and confusing them is one of the most common mistakes founders make.

Why Churn Rate Matters for SaaS

Churn is the silent killer of SaaS businesses. You can have the best acquisition engine in the world, but if customers are leaving as fast as they're arriving, you're running on a treadmill. Understanding what is customer churn — and quantifying it — is the first step to building a company that actually grows.

Here's why churn rate deserves your obsessive attention:

• The compound effect is brutal. A 5% monthly churn rate means you lose nearly half your customer base every year. Even a small reduction — say from 5% to 3% — has a massive compound impact over 12 months.
• It creates a growth ceiling. At some point, churn equals new customer acquisition. When you hit that ceiling, growth flatlines no matter how much you spend on marketing.
• Investors watch it closely. High churn is a red flag in every fundraising conversation. It signals product-market fit issues, pricing problems, or both.
• Retention is cheaper than acquisition. It costs 5-7x more to acquire a new customer than to keep an existing one. Reducing churn is one of the highest-ROI activities a SaaS founder can invest in.

At MRRSaver, we've seen founders double their net revenue growth not by acquiring more customers, but by plugging the leaks in their retention funnel. Churn rate is where you start.

How to Calculate Churn Rate

The basic churn rate formula is simple, but the details matter. Let's break it down by the two most important types: customer churn rate and revenue churn rate.

Customer Churn Rate Formula

Customer churn rate measures the percentage of customers who cancel during a given period. The formula is:

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

For example, if you start the month with 500 customers and lose 15, your monthly customer churn rate is (15 / 500) x 100 = 3%. This is the most common version of the churn rate calculation and the one most founders reference first.

One important note: only count actual cancellations, not downgrades. A customer who moves from your Pro plan to your Starter plan is still a customer. Mixing these up inflates your churn rate and gives you a misleading picture.

Revenue Churn Rate Formula

Revenue churn rate measures the percentage of MRR (monthly recurring revenue) you lose from cancellations and downgrades. The formula is:

Revenue Churn Rate = (MRR Lost During Period / MRR at Start of Period) x 100

This metric matters because not all customers are equal. Losing a customer paying $500/month hurts a lot more than losing one paying $29/month. Revenue churn rate captures this distinction that customer churn rate misses entirely.

There's also a concept called net revenue churn, which accounts for expansion revenue (upgrades) from existing customers. If your expansion revenue exceeds your revenue losses, you achieve negative net churn — the holy grail of SaaS metrics. It means your existing customer base is growing in value even without any new sign-ups.

Monthly vs Annual Churn Rate

Most SaaS companies track churn rate monthly, but it's important to understand how monthly and annual churn rate relate. You cannot simply multiply your monthly rate by 12. A 5% monthly churn rate doesn't equal 60% annual churn — it actually compounds to about 46% annual churn.

The correct conversion formula is:

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

When discussing churn rate benchmarks, make sure you're comparing apples to apples. A 5% annual churn rate is excellent. A 5% monthly churn rate is a crisis. Always clarify the time period.

What Is a Good Churn Rate for SaaS?

"What's a good churn rate?" is one of the most common questions SaaS founders ask — and the honest answer is: it depends. Your stage, segment, pricing model, and market all play a role. But here are the general benchmarks the industry relies on.

By business model:

• B2B SaaS: 3-5% annual churn rate is considered healthy. Enterprise B2B products with long contracts often see even lower rates.
• B2C SaaS: 5-7% annual churn rate is typical. Consumer products tend to have higher churn because switching costs are lower.
• SMB-focused SaaS: 3-7% monthly churn rate is common. Small businesses have higher failure rates and tighter budgets, which directly impacts churn.

By company stage:

• Early-stage (pre-PMF): Higher churn is normal while you're iterating on product and pricing. Don't panic, but do track it.
• Growth-stage: You should be actively working to bring churn below industry benchmarks. This is where retention strategies pay off the most.
• Mature SaaS: Best-in-class companies achieve negative net revenue churn, meaning expansion revenue from existing customers outpaces losses.

Don't use benchmarks as an excuse to be complacent. Even if your churn rate is "average," every percentage point you shave off goes straight to your bottom line. The goal isn't to be normal — it's to be better than you were last month.

Voluntary vs Involuntary Churn: Two Different Problems

Not all churn is created equal. Understanding what is customer churn at a deeper level means distinguishing between voluntary and involuntary churn — because they have completely different causes and solutions.

Voluntary churn happens when a customer actively decides to leave. They click the cancel button. They found a competitor. They no longer need the product. They think it's too expensive. This type of churn is a signal about your product, pricing, or market fit.

Involuntary churn happens when a customer's payment fails and their subscription lapses — even though they never intended to cancel. Expired credit cards, insufficient funds, bank declines, and outdated billing information are the usual culprits.

Here's the thing most founders don't realize: involuntary churn typically accounts for 20-40% of all SaaS churn. That's a huge percentage of revenue walking out the door — and the customers involved didn't even want to leave. At MRRSaver, we've seen companies recover thousands of dollars in MRR simply by automating their failed payment recovery.

The distinction matters because each type requires a different strategy. Voluntary churn needs product improvements, better onboarding, and cancel flows. Involuntary churn needs automated dunning sequences and smart payment retry logic. Lump them together and you'll misdiagnose the problem.

Churn Rate vs Retention Rate: What's the Difference?

Churn rate and retention rate are two sides of the same coin. They're mathematically related, but they frame the story differently. The relationship is simple:

Retention Rate = 100% - Churn Rate

If your monthly churn rate is 3%, your monthly retention rate is 97%. If your annual churn rate is 10%, your annual retention rate is 90%. They measure the same thing from opposite perspectives.

So why do both metrics exist? It comes down to framing. Retention rate is better for board decks and investor presentations — "We retain 95% of customers" sounds impressive. Churn rate is better for operational focus — "We're losing 5% of customers" creates urgency to fix the problem. Smart founders track both but lead with whichever drives action.

One important caveat: net retention rate (NRR) includes expansion revenue, while churn rate typically doesn't. A company can have a 5% gross churn rate but 110% net retention rate if upsells and upgrades exceed revenue losses. NRR is arguably the most important SaaS metric of all.

How to Reduce Your SaaS Churn Rate

Knowing your churn rate is step one. Reducing it is where the real work begins. After working with hundreds of SaaS founders through MRRSaver, we've found that the most effective approach is to tackle churn in order of effort-to-impact ratio. Start with the easiest wins and work your way up.

Fix Involuntary Churn First

Involuntary churn is the lowest-hanging fruit in your retention strategy. These customers want to keep paying you — their payment just failed. The fix is largely mechanical, and the ROI is immediate.

Here's what an effective failed payment recovery system looks like:

• Smart payment retries. Retry failed charges at optimal intervals based on the failure reason, rather than using Stripe's default retry schedule.
• Dunning email sequences. Notify customers about failed payments with clear, friendly emails that make it easy to update their payment method.
• Pre-dunning alerts. Reach out before cards expire so customers can update their information proactively.

This is exactly what MRRSaver automates. You connect your Stripe account in one click, and the platform handles payment recovery on autopilot — no code, no manual follow-ups. Plans start at $29/month with a 7-day free trial, so you can see the impact before committing.

Improve Onboarding

Most voluntary churn has its roots in poor onboarding. If a customer doesn't experience your product's core value within the first few days, they're unlikely to stick around. The goal of onboarding isn't to show every feature — it's to get the customer to their "aha moment" as fast as possible.

Practical steps to improve onboarding and reduce churn rate:

• Identify your activation metric — the single action that correlates most strongly with long-term retention. Then optimize everything to drive new users toward it.
• Remove friction from setup. Every extra step between sign-up and value is a potential drop-off point.
• Send targeted onboarding emails based on user behavior, not just a time-based drip sequence.
• Offer live onboarding calls for high-value accounts. The personal touch dramatically reduces early-stage churn.

Use Cancel Flows to Save At-Risk Customers

When a customer clicks "cancel," that's not the end of the story — it's the beginning of a critical conversation. A well-designed cancel flow can save 10-30% of would-be churners by understanding their reasons and offering targeted alternatives.

Effective cancel flows include a short survey to understand the cancellation reason, followed by a personalized offer. If price is the issue, offer a discount or downgrade. If they're not using the product enough, offer extended onboarding support. If they found a competitor, ask what's missing.

This is another area MRRSaver helps with. Beyond payment recovery, the platform includes smart cancel flows that automatically present the right offer based on the customer's stated reason for leaving. It's one of the three pillars of the platform — alongside payment recovery and customer reactivation.

Even if you're building cancel flows manually, always remember: every customer who reaches the cancel button has already made a partial decision. Your job is to make them reconsider — not by trapping them, but by genuinely solving the problem that's driving them away.

More Strategies to Keep Your Churn Rate Low

Beyond the big three — fixing involuntary churn, improving onboarding, and implementing cancel flows — there are several other strategies that can meaningfully reduce your churn rate over time.

• Monitor engagement signals. Track login frequency, feature usage, and support tickets. Customers who stop logging in are waving a red flag. Reach out proactively before they cancel.
• Encourage annual plans. Annual subscribers churn at significantly lower rates than monthly subscribers. Offer a meaningful discount (15-20%) to incentivize the switch.
• Build a feedback loop. Regularly survey your customers — especially those who have been around for a while. NPS surveys and in-app feedback widgets can reveal churn risks before they materialize.
• Invest in customer success. For higher-ACV products, dedicated customer success managers can dramatically reduce churn by ensuring customers continually get value from your product.
• Reactivate churned customers. Just because someone cancelled doesn't mean they're gone forever. Win-back campaigns targeting former customers can recover 5-15% of churned accounts, especially after you've shipped features that address their original complaints.

Start Tracking — and Reducing — Your Churn Rate Today

Churn rate isn't just a metric — it's a diagnostic tool for the health of your entire SaaS business. It tells you whether your product delivers enough value to keep customers around, whether your pricing makes sense, and whether your retention infrastructure is doing its job.

If you take one thing from this guide, let it be this: start by measuring churn rate accurately (both customer and revenue churn), then tackle involuntary churn first because it's the quickest win. From there, work on onboarding, cancel flows, and engagement monitoring.

MRRSaver was built to help SaaS founders solve churn on autopilot — from recovering failed payments to preventing cancellations to reactivating lost customers. If you're ready to protect your MRR, connect your Stripe account and start your 7-day free trial. You'll see exactly how much revenue you're leaving on the table.