How to calculate SaaS churn rate

Churn is the share of customers, or revenue, you lose in a period. There are a few versions, and mixing them up is the most common way founders get the number wrong. Here are the formulas with one example worked through.

The example company below is made up so the math is easy to follow.

The example

At the start of the month: 200 paying customers and $10,000 MRR. During the month, 8 customers cancel ($500 of MRR), some downgrade ($200 less MRR), and some upgrade ($400 more MRR).

Customer churn

Customer churn = customers lost this month ÷ customers at the start of the month. 8 ÷ 200 = 4%. Don't count customers who signed up during the month in either number, or a good sales month will hide your churn.

Gross revenue churn

Gross revenue churn = (MRR lost to cancellations + MRR lost to downgrades) ÷ starting MRR. ($500 + $200) ÷ $10,000 = 7%. It can be higher than customer churn when your bigger customers are the ones leaving.

Net revenue churn and NRR

Net revenue churn = (lost MRR + downgrades − upgrades) ÷ starting MRR. ($700 − $400) ÷ $10,000 = 3%.

Net revenue retention (NRR) = (starting MRR − lost MRR − downgrades + upgrades) ÷ starting MRR. ($10,000 − $700 + $400) ÷ $10,000 = 97%. Above 100% means your existing customers grow revenue even before you add anyone new.

Monthly to annual: don't multiply by 12

4% a month is not 48% a year, because each month you lose 4% of a smaller group. Annual churn = 1 − (1 − monthly churn)¹². 1 − 0.96¹² is about 39%.

What churn means for lifetime and LTV

A rough average customer lifetime = 1 ÷ monthly churn, so 1 ÷ 0.04 = 25 months. That feeds straight into LTV, which is why small churn changes move LTV so much. The SaaS metrics formulas page walks through LTV, CAC payback and runway, and the free runway and LTV calculator does the math for your own numbers.

Common mistakes

• Dividing by end-of-month customers instead of start-of-month.
• Reading too much into one month when you have few customers. One cancellation out of 20 is 5%. Look at a three-month average.
• Counting failed payments that later recover as churn. Decide on a rule and stick to it.

Want the full model?

The Founder Unit Economics Pack ($39) is an Excel and Google Sheets workbook that ties churn to LTV, a 12-month MRR projection and runway, with side-by-side scenarios.