How to Calculate Churn Rate

I’ve had this conversation more times than I can count.

A merchant opens their Churn.io dashboard on an onboarding call. They show me their monthly churn rate. Then I ask one question: Which formula did you use?

Most of the time, that question catches them off guard. They assumed there was only one churn formula.

There isn’t.

And that matters because the formula you choose can change the number you see.

Key takeaways

• Customer churn rate = customers lost ÷ customers at the start of the period × 100.
• There are 3 valid ways to calculate churn.
• The simple method and adjusted method can differ by more than one full percentage point for fast-growing companies.
• The correct annualized formula is: 1 - (1 - monthly churn rate)^12.
• Revenue churn and customer churn measure different things.
• Revenue churn shows the money impact, and it is often the more important number.
• The overall median monthly churn rate is 3.27%.

How to calculate churn rate

Customer churn rate is the percentage of customers who cancel during a set period with the formula:

Churn rate = customers lost ÷ customers at the start of the period × 100

So, if a business starts the month with 500 subscribers and loses 15, the monthly churn rate is:

15 ÷ 500 × 100 = 3%

That part is simple.

The harder part is knowing which customer count to use.

The denominator question

The denominator is the number you divide by. For churn, that usually means your customer count at the start of the period.

But this gets messy when your customer base changes during the period.

Let’s say you start the month with 500 customers. Then you add 80 new customers halfway through the month.

Should those 80 new customers count in your churn calculation?

They were not there when the month began, so the answer depends on your churn method.

And if a customer joins and cancels in the same month, you need to count them the same way every time. Otherwise, they can distort your churn rate.

That is the denominator question.

It decides which churn method you are using. And each method can give you a different answer from the same data.

Why fast growth can distort churn

In our conversations with Churn.io customers, the companies whose churn rate feels “off” are often growing faster than 20% month over month.

That fast growth can make the simple churn method misleading.

The problem is that the customers in the numerator and denominator may not be the same group.

If customers join and cancel in the same month, they may count as churned customers without being part of the starting customer base.

One customer spent three months comparing their churn rate to published SaaS benchmarks before they found the issue.

The benchmark used the simple method. Their analytics tool used the average method.

So they were comparing a 3.7% churn rate to benchmark data built on a 4.0% churn rate.

They thought they were beating the average.

They were comparing 2 different things.

Which churn method should you use?

There is a right answer, but it depends on the question you want to answer.

Use the simple method when you want to compare your churn rate to outside benchmarks.

Many SaaS churn benchmarks use a simple customer or subscriber denominator. But always check the benchmark’s method before you compare it to your own rate.

Use a cohort-based calculation when you want to know how well you kept the customers who were active at the start of the period.

Use an adjusted average denominator when you want a period churn rate that smooths out growth spikes.

You can also run all three methods in the churn rate calculator and see how much the results differ.

Churn rate formulas by type

The basic churn formula stays the same: divide what you lost by what you started with.

What changes is what you are measuring.

1. Monthly customer churn

Monthly customer churn measures how many customers canceled during one month.

Use it when you want to track short-term retention trends.

Monthly churn = customers lost during the month ÷ customers at the start of the month × 100

2. Annual customer churn

Annual customer churn measures how many customers you lost over a full year.

Use it when you want a longer-term view of retention.

Annual churn = customers lost during the year ÷ customers at the start of the year × 100

Just don’t convert monthly churn to annual churn by multiplying by 12. Monthly churn compounds, so the annualized formula is different.

3. Revenue churn

Revenue churn measures lost recurring revenue instead of lost customers.

Use it when you want to understand the financial impact of churn.

Revenue churn rate = MRR lost to cancellations ÷ total MRR at the start of the period × 100

This matters because customer churn and revenue churn can tell different stories.

You might lose many small customers and barely dent revenue. Or you might lose a few large accounts and take a major revenue hit.

The churn rate calculator handles monthly churn, annual churn, and revenue churn. It also runs all three denominator methods side by side so you can see how much your method changes the result.

3 churn rate calculation methods and when to use each one

The 3 churn methods mostly differ in one place:

What counts as your starting customer base?

All 3 methods also measure churn within a set period, like a month, quarter, or year.

A cohort-based calculation is different. It follows one signup group over time and shows how that group retains month after month.

Here’s how the period-based methods work on the same data:

• 500 subscribers on January 1
• 80 new customers added during the month
• 20 customers lost by January 31

Same month. Same 20 customers lost. But the result changes based on the denominator.

That’s why churn rate can look cleaner than it really is, or worse than it really is, depending on the method.

Method 1: Simple churn

The simple method divides customers lost by customers at the start of the period. It’s common in published SaaS benchmarks.

That makes it useful when you need to compare your churn rate to outside data.

The drawback is growth.

If you add many new customers during the month, the simple method can make churn look better than it is. New customers can soften the number, even if retention for existing customers did not improve.

The faster you grow, the more this can distort the result.

Method 2: Average churn

The average method divides customers lost by the average of your starting and ending customer count.

The formula is:

Customers lost ÷ ((start count + end count) / 2) × 100

This helps smooth out spikes from growth or acquisition.

It’s a useful middle ground when new customer volume changes a lot from month to month.

But it still blends new customers and existing customers together. So it doesn’t answer this question:

How well are we keeping the customers we already had?

Method 3: Adjusted or starting-cohort churn

Adjusted churn removes some of the noise created by new customers.

A starting-cohort calculation is the cleanest way to measure retention quality for your existing customer base. It compares churn from the same group of customers against the group that was actually at risk at the start of the period.

That matters because new customers can act like a buffer.

If you added 80 new customers in a month, your total customer count may look healthy. But your existing customers may still be leaving at a concerning rate.

Starting-cohort churn helps you see that.

If your simple churn rate and adjusted churn rate are far apart, growth or same-period customer movement is affecting your churn number.

Treat that gap as a signal.

Before you decide retention is improving or getting worse, review cohort retention.

How to convert monthly churn to annual churn rate

Monthly churn and annual churn are related, but you shouldn’t multiply monthly churn by 12. That shortcut overstates the annual rate because churn compounds. Each month, you’re losing a percentage of a smaller base than the month before.

The correct formula is:

Annual churn = 1 - (1 - monthly churn rate)^12

At 3% monthly churn, the math is:

1 - (0.97)^12 = 30.6%

The shortcut gives you:

3% × 12 = 36%

That is almost 5 percentage points too high.

And the gap gets bigger as monthly churn rises.

The shortcut is close at very low churn rates.

But once monthly churn is above 5%, it becomes meaningfully wrong. It can make your annual churn look much worse than it is.

To convert annual churn back to monthly churn, use this formula:

Monthly churn = 1 - (1 - annual churn rate)^(1/12)

How to calculate gross revenue churn rate

Gross revenue churn measures how much recurring revenue you lost from existing customers during a period.

Customer churn counts accounts.

Revenue churn counts dollars.

That difference matters because not every customer has the same value. Losing one large account can hurt more than losing many small accounts.

Gross revenue churn formula

The gross revenue churn formula is:

Gross revenue churn = ((Churned MRR + contraction MRR) ÷ starting MRR) × 100

In this formula:

• Churned MRR is revenue lost from cancellations.
• Contraction MRR is revenue lost from downgrades, seat reductions, usage reductions, or plan changes that make an existing customer’s subscription smaller.
• Starting MRR is the recurring revenue you had at the start of the period.

Gross revenue churn example

Here’s a simple example.

A company starts the month with $100,000 in MRR.

During the month, it loses:

• $4,000 from cancellations
• $1,000 from downgrades

The gross revenue churn rate is:

($4,000 + $1,000) ÷ $100,000 × 100 = 5%

So the company’s gross revenue churn for the month is 5%.

Why revenue churn can look different from customer churn

Revenue churn can tell a very different story from customer churn.

If you lose 50 low-value subscribers but keep your biggest accounts, customer churn may look bad. But gross revenue churn may look manageable.

And if you lose two large accounts, customer churn may look small. But revenue churn may look painful.

That is why both numbers matter.

Customer churn tells you the count.

Gross revenue churn tells you the cost.

Gross revenue churn vs. net revenue churn

Gross revenue churn is different from net revenue churn.

Gross revenue churn only counts revenue lost from cancellations and contraction.

Net revenue churn subtracts expansion revenue from existing customers.

That is why net revenue churn can go negative. If expansion revenue is larger than the revenue you lost, your net revenue churn becomes negative.

For a full breakdown of how customer churn and revenue churn relate, see the guide on retention rate vs churn rate.

And for cases where expansion revenue from existing customers outpaces losses, see the guide to negative churn and net revenue retention.

What good churn rate benchmarks look like

Benchmarks only help when you compare the same method.

Most published industry benchmarks use the simple method. So if you use the adjusted or average method internally, convert your number before you compare it to outside data.

Otherwise, you may read a false signal.

Median monthly churn across subscription businesses is around 3.27%. But that headline number hides a lot of variation.

The biggest driver is often billing cycle.

Monthly-billing products usually churn more than annual-billing products. SMB-focused products also tend to churn more than enterprise products.

If you need the full breakdown by segment and billing frequency, the What Is Churn Rate? guide covers the Recurly benchmark data and what drives the spread.

David Skok’s SaaS Metrics 2.0 flags net revenue churn above 2% per month as a warning sign that something is wrong in the business.

Above 5% monthly churn, you have a compounding problem.

The number of customers lost each month grows as your business grows. That means churn starts scaling with your success, and it can put a ceiling on growth.

For the full picture of churn causes and the actions that can reduce churn, see our guide on how to reduce churn.

Frequently asked questions

What does 5% monthly churn mean?

At 5% monthly, only 54% of a starting cohort remains after 12 months. The absolute number lost each month grows as the business grows, which sets a growth ceiling on how large the business can get.

What is 2% monthly churn annualized?

Using the correct compounding formula: 1 - (1 - 0.02)^12 = 21.5% annually. The ×12 approximation gives 24%, which overstates the rate.

Is 20% churn high?

Annually: 20% annual churn is at the high end for most subscription businesses, but it's not unusual for SMB-focused or monthly-billing products. Monthly: 20% monthly churn is severe.

How do you calculate churn rate in Excel?

Divide the customers-lost cell by the starting-customers cell and multiply by 100. For example: =(B2/A2)*100, where A2 is starting customer count and B2 is customers lost.

Run this with Churn.io

Churn.io helps you see why customers leave and where churn is coming from.

It segments cancellation flows by reason. It retries failed payments with account updater logic. And it sends exit reasons to the right teams, including product, pricing, and sales.

That way, each team can see the churn signals that matter to them.

One Stripe or Chargebee integration covers all three churn categories.

See how it works or book a 20-minute walkthrough.