What is Churn?
TL;DR
Churn rate is the percentage of customers who stop using your product or cancel their subscription over a given period.
Example
You start the month with 1,000 customers. By the end of the month, 50 have cancelled.
Your monthly churn rate is 5% (50 ÷ 1000 × 100).
The churn problem illustrated:
- Month 1: 1,000 customers, 5% churn = 950 remaining
- Month 2: 950 customers, 5% churn = 902 remaining
- Month 3: 902 customers, 5% churn = 857 remaining
Even if you add 50 new customers each month, you're barely staying even. This is why reducing churn is often more valuable than acquiring new customers.
What "good" churn looks like:
| Business Type | Typical Monthly Churn |
|---|---|
| B2B SaaS | 2-3% |
| B2C SaaS | 5-7% |
| Streaming services | 5-8% |
| Gyms | 3-5% |
Explanation
Types of Churn
Voluntary churn - Customer actively decides to leave (cancels, switches to competitor).
Involuntary churn - Payment fails, credit card expires, billing issue. Often recoverable.
Revenue churn - The percentage of revenue lost, which accounts for different customer values. Losing a $1,000/month customer matters more than losing a $50/month customer.
Why Customers Churn
- Poor onboarding - They never understood how to get value
- Lack of engagement - They stopped using the product
- Missing features - You don't solve their problem well enough
- Better alternatives - Competitor offers more value
- Price sensitivity - They can't afford it anymore
- Bad experience - Support, bugs, or frustrations
Calculating Churn
Simple churn rate: (Customers lost in period ÷ Customers at start of period) × 100
Revenue churn rate: (MRR lost in period ÷ MRR at start of period) × 100
Why It Matters
For Business Owners
The leaky bucket problem. You can pour water (new customers) into a bucket all day, but if the bucket has holes (churn), you'll never fill it.
Economics of retention. It costs 5-25x more to acquire a new customer than to keep an existing one. Reducing churn is often the highest-ROI investment.
Churn compounds. Small differences in monthly churn become massive over a year. 3% monthly churn means you lose 31% of customers yearly. 5% monthly means 46% yearly.
How to Reduce Churn
- Improve onboarding to get users to value faster
- Monitor engagement and reach out to disengaged users
- Collect and act on feedback
- Build features that make your product "sticky"
- Fix payment failures (involuntary churn)
- Offer alternatives to cancellation (pause, downgrade)
Need help with your digital project?
We build websites, apps, and digital solutions for businesses.
Get in touch