What is Churn rate? Definition, Formula & Benchmarks

What is churn rate?

Churn rate is the percentage of customers (or revenue) you lose over a set period, usually a month or year. It's the leaky-bucket metric: if you're adding customers faster than you're losing them, you grow; if not, you don't. Lower is better, and it directly caps how big you can get.

Formula

Churn Rate = Customers Lost During Period ÷ Customers at Start of Period

Customers Lost During PeriodCustomers who cancelled or didn't renew in the period
Customers at Start of PeriodTotal active customers at the beginning of the period

Worked example

If you start the month with 400 customers and 12 cancel, your monthly churn rate is 3% (12 ÷ 400).

Why it matters for fast-growing companies

Churn quietly sets your growth ceiling: high churn means you refill the bucket just to stand still, and it crushes lifetime value and payback math. Founders should track it monthly, split logo churn from revenue churn, and treat any upward drift as an early warning on product fit or onboarding.

Frequently asked questions

What's the difference between monthly and annual churn?+

Monthly churn measures losses over a single month; annual churn measures them over a year. They aren't interchangeable: roughly 3% monthly churn compounds to about 30% annually, not 36%, because you're losing a share of an ever-smaller base each month. Always state the period you mean.

Should I count churn by customers or by revenue?+

Track both. Customer (logo) churn tells you how many accounts you're losing; revenue churn tells you how much money walks out the door. A few large accounts leaving can look tiny on a logo basis but wreck revenue, so watch the dollars alongside the count.

Churn rate