What Is Churn Rate?
Churn rate is the percentage of customers, or recurring revenue, a business loses over a given period, such as a month.
How it works
Customer churn in words: customers lost during the period divided by customers at the start of the period. Revenue churn works the same way using dollars of recurring revenue. "Net" revenue churn also subtracts expansion revenue from existing customers, so it can even go negative if upgrades outweigh losses.
Churn compounds. A small monthly rate adds up over a year, so a business with 5 percent monthly churn loses roughly 46 percent of a cohort within twelve months.
Example
For example, a company starts the month with 400 customers and loses 20. Customer churn is 20 divided by 400, or 5 percent. If those 400 customers paid a total of $20,000 a month and the lost ones paid $900, revenue churn is $900 divided by $20,000, or 4.5 percent. The two measures differ when small and large customers leave at different rates.
Why founders care
High churn means you are refilling a leaking bucket. It cuts customer lifetime value, makes acquisition cost harder to recover and slows growth. Looking at churn by customer group or sign-up month often shows where the problem is, such as poor onboarding or customers who were never a good fit.
Common mistakes
- Looking only at a blended churn number and hiding bad cohorts.
- Measuring too early, before customers had a chance to cancel.
- Forgetting that involuntary churn from failed payments also counts.
Frequently asked questions
What is a good churn rate?
It depends on whether you sell to consumers or businesses, price and contract length. Lower is better, and benchmarks vary widely, so compare to similar companies and track your own trend.
How do I reduce churn?
Find out why people leave by asking them, improve onboarding, fix failed payments, and focus on customers who get real value. Better targeting at the start often matters most.
Related terms
Go deeper
- Startup Metrics That Matter: MRR, Churn, CAC and LTV GuideStartup metrics explained in plain English: MRR, ARR, churn, CAC, LTV and more, with formulas in words, worked examples, and what investors ask for.
- How to Find Product Market Fit: Signs and Tests GuideHow to find product market fit and know when you have it: signs to watch, a simple survey, how long it takes, and what to do if the signs are not there yet.
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General information, not legal, tax or financial advice. Reviewed 11 November 2026.