Glossary
What Is Churn Rate?
Updated · Team Fonda
Short answer
Churn rate is the percentage of your customers who stop buying or cancel in a given period, usually a month or a year. You calculate it by dividing the customers you lost during the period by the customers you had at the start, then multiplying by 100.
Key takeaways
- Churn rate = customers lost in the period / customers at the start of the period x 100.
- Small monthly churn adds up: it compounds over a year, so always check the annual figure too.
- Customer churn counts people, revenue churn counts money. They can tell different stories.
- For a new business, the reasons people leave matter more than the percentage.
What churn rate means in plain words
Churn is the opposite of retention. If 100 people paid you last month and 95 of them pay you again this month, you kept 95% and churned 5%. The term is used most in subscription businesses such as SaaS, memberships and subscription boxes, but any business with repeat customers has churn, whether it measures it or not.
Churn matters because every customer who leaves has to be replaced before you can grow. A business with high churn is filling a bucket with a hole in it.
How to calculate churn rate
Formula
Customer churn rate = customers lost in the period / customers at the start of the period x 100
Only count customers who were there at the start. People who joined and left inside the same period are left out of this simple version, which is one reason to keep periods short while you are small.
- Revenue churn: recurring revenue lost / recurring revenue at the start x 100. Use it when customers pay very different amounts.
- Annual churn from monthly churn: 1 - (1 - monthly churn) ^ 12. You cannot just multiply by 12.
- Average customer lifetime in months: 1 / monthly churn rate.
The free churn rate calculator does all four sums for you.
A worked example
This is a made-up example. Say you run a meal-planning app and start March with 200 paying subscribers. During March, 8 of them cancel.
| Measure | Sum | Result |
|---|---|---|
| Monthly churn rate | 8 / 200 x 100 | 4% |
| Monthly retention rate | 100% - 4% | 96% |
| Churn over a year | 1 - 0.96 ^ 12 | About 39% |
| Average customer lifetime | 1 / 0.04 | 25 months |
Example numbers for illustration only.
A 4% month sounds small. Over a year it means roughly four in ten of today's subscribers will be gone, which is why the annual view is the one to plan with.
Why churn matters for a first-time founder
You meet churn as soon as you have your first paying customers. At that stage the percentage is noisy, because losing two of ten customers is a 20% churn month that may mean nothing. What you can learn from is the reason each person left. Call or message them. Their answers are some of the lowest-cost customer interviews you will ever get.
Later, churn feeds your other numbers. It sets how long a customer stays, which sets customer lifetime value, which tells you how much you can afford to spend on customer acquisition cost. Low churn is also one of the clearest signs of product-market fit, and investors will ask for it. Fonda's journey has a Key metrics step in the Scale phase, and churn is the kind of figure that belongs there.
Common mistakes with churn
- Multiplying monthly churn by 12. Churn compounds, so use the annual formula above.
- Mixing monthly and annual plans. Annual customers cannot leave until renewal, so they make monthly churn look better than it is. Track each plan type on its own.
- Counting only cancellations. Failed card payments and customers who simply stop ordering are churn too.
- Reading a tiny sample as a trend. With fewer than a few dozen customers, look at names and reasons, not percentages.
- Fixing churn with discounts. If people leave because the product does not solve their problem, a lower price only delays it.
Related terms
- Retention rate: the share of customers who stay. It is 100% minus churn.
- [Monthly recurring revenue](/resources/glossary/monthly-recurring-revenue): the subscription income that churn eats into.
- [Unit economics](/resources/glossary/unit-economics): what you earn and spend per customer, which depends heavily on churn.
Frequently asked questions
What is a good churn rate?
It depends on your price, your customer type and how long you have been trading. Businesses selling to large companies on annual contracts usually see lower churn than low-priced consumer apps. Rather than chase a universal benchmark, track your own churn each month and aim for it to fall.
What is the difference between customer churn and revenue churn?
Customer churn counts how many customers left. Revenue churn counts how much recurring revenue left with them. If your smallest customers leave and your largest stay, customer churn can look high while revenue churn stays low.
What is negative churn?
Negative churn, also called net negative revenue churn, happens when the extra revenue from existing customers who upgrade is larger than the revenue lost from those who cancel or downgrade. Your existing customer base then grows in value even with no new sales.
Does churn apply to a business without subscriptions?
Yes, but you have to define it yourself. A common approach is to pick a normal gap between purchases, such as 90 days for a shop, and count a customer as churned if they have not bought again within it.