What is churn rate? Formula and examples

Churn rate is the share of your customers, or of your recurring revenue, that you lose over a period, usually a month. If you start the month with 200 paying customers and 6 of them cancel, your monthly customer churn is 6 ÷ 200 = 3%.

Churn is the second number a buyer asks for after MRR, and the one that decides whether MRR is worth paying for. Two startups at $5,000 MRR are not worth the same if one loses 2% of its customers a month and the other loses 9%: the first keeps most of what it sells, and the second has to replace almost its whole customer base every year just to stand still.

What is the churn rate formula?

Customer churn = customers lost during the period ÷ customers at the start of the period.

Customer churn = customers who cancelled ÷ customers at the start × 100

Count only customers who were already paying at the start. Customers who signed up and cancelled inside the same month are usually left out of the denominator, because they were never part of the base you started with. Keep whichever convention you pick and apply it every month, or your trend line is measuring your bookkeeping instead of your business.

Revenue churn = MRR lost from existing customers ÷ MRR at the start of the period.

Revenue churn = (MRR from cancellations + downgrades) ÷ starting MRR × 100

What is the difference between customer churn and revenue churn?

Customer churn counts people; revenue churn counts dollars. They diverge whenever your customers pay different amounts.

Say you start a month with 100 customers and $5,000 MRR. Four customers cancel, and together they were paying $120.

Metric	Calculation	Result
Customer churn	4 ÷ 100	4.0%
Revenue churn	$120 ÷ $5,000	2.4%

Revenue churn is lower here because the customers who left were paying below average ($30 each against a $50 average). That is the healthy direction. When revenue churn is higher than customer churn, your biggest accounts are the ones leaving, which matters far more than the headcount suggests.

What is net revenue retention?

Net revenue retention (NRR) is what happened to the revenue from last period's customers after cancellations, downgrades and upgrades. It is revenue churn with expansion added back.

NRR = (starting MRR − churned MRR − downgrades + upgrades) ÷ starting MRR × 100

Start with $5,000 MRR, lose $120 to cancellations, and gain $200 from customers moving to bigger plans: NRR = ($5,000 − $120 + $200) ÷ $5,000 = 101.6%.

NRR above 100% is called negative churn: existing customers grow faster than they leave, so revenue would rise even if you never signed another customer. It is rare in small self-serve products and common in seat-based B2B tools, and buyers pay a premium for it.

What is a good churn rate?

There is no single benchmark, but these monthly ranges are how buyers in the small software market generally read a figure:

Monthly customer churn	How it reads	Annual equivalent
Under 2%	Low. Strong retention.	~22% of customers
2–5%	Moderate. Normal for self-serve.	~22–46%
5–10%	High. Growth gets expensive.	~46–72%
Over 10%	Severe. The base turns over yearly.	Over 72%

The annual column is 1 − (1 − monthly)^12, not the monthly figure times twelve. Compounding matters: 5% a month is not 60% a year, it is about 46%, because each month's loss applies to a base that already shrank.

What counts as acceptable depends on the price point and who you sell to. A $9/month consumer app with 8% churn can work if acquisition is cheap and the audience is large. A $500/month B2B tool with the same churn is in trouble, because each lost account took real effort to win.

How does churn affect what a startup is worth?

Churn moves the multiple, not just the revenue. On VerifyArr's valuation estimate, churn adjusts the category's base multiple by these amounts:

Monthly churn	Band	Effect on the multiple
2% or less	Low	+10%
2.01–5%	Moderate	No change
5.01–10%	High	−12%
Over 10%	Severe	−25%

Growth is banded the same way, from +25% for exceptional to −25% for shrinking, and the two adjustments stack. So a startup at $5,000 MRR with low churn and strong growth is estimated well above an identical one that is flat and churning 12%, on exactly the same revenue.

A worked example, at a base multiple of 2.5x annual revenue on $60,000 ARR:

• Low churn (1.5%), steady growth: 2.5 × 1.10 = 2.75x → about $165,000
• Moderate churn (4%), steady growth: 2.5x → about $150,000
• Severe churn (12%), flat growth: 2.5 × (1 − 0.25 − 0.08) = 1.675x → about $100,500

The estimate is quoted as a range of ±15% around that figure, because a single number would imply a precision this kind of estimate does not have. For how base multiples are set by category and MRR band, see how much a SaaS is worth.

How do you reduce churn?

The lever depends on when customers leave, so split your cancellations by age before you fix anything.

• Cancellations in the first month are usually an onboarding or expectation problem. The customer never reached the point where the product did its job. Fix activation, not pricing.
• Cancellations after many months are usually value or competition. Ask the leavers directly; a one-question cancellation survey answers more than analytics will.
• Involuntary churn is cards expiring and payments failing, not people deciding to leave. It is often 20–40% of total churn in consumer products and the cheapest to fix: dunning emails, card-update reminders and retries. In Stripe, these are the subscriptions that go past_due before they cancel.
• Annual plans cut monthly churn mechanically, because a customer on a yearly plan can only churn once a year. Offer them, but don't mistake the smoother chart for better retention.

If you are preparing to sell, note that churn is measured over months, so it is one of the metrics you cannot improve in the last two weeks. That is why the 90-day checklist starts with revenue data.

How does a buyer verify a churn figure?

Ask for the subscription history, not the summary. A churn number is only as good as the data under it, and churn is easy to flatter by accident:

1. Check the denominator. Excluding customers who signed up and left in the same month is normal; excluding anyone else is not.
2. Ask for churn by month, not an average. A 3% average can be six quiet months and one month where a tenth of the base left.
3. Look for churn hidden by new sales. Flat MRR with high churn means the founder is replacing customers as fast as they leave. Growing MRR says nothing about retention on its own; you need both numbers side by side.
4. Separate voluntary from involuntary. Failed payments that recover are not lost customers.
5. Watch for concentration. If one customer is a third of MRR, the churn percentage is almost meaningless. One cancellation is a cliff, not a rate.

On VerifyArr, churn is read from the payment provider rather than typed in by the seller. For Stripe accounts it is computed as customer churn over the last 30 days: the share of customers who had a counted subscription 30 days ago and have none now. Listings show it next to MRR, 30-day growth and the customer count, and the numbers resync every hour. For apps connected through RevenueCat, VerifyArr reads the churn RevenueCat calculates from App Store and Google Play receipts, which covers the last complete month, so listings label it accordingly. Listings also carry an automatic flag when one customer is more than 30% of MRR, which is exactly the case where a churn rate stops meaning much.

Frequently asked questions

How do I calculate annual churn from monthly churn?

Use 1 − (1 − monthly churn)^12. At 3% a month that is 1 − 0.97^12 = about 31% a year, not 36%. Multiplying by 12 overstates it, because each month's loss comes off a smaller base.

Is churn the opposite of retention?

For a single period, yes: customer retention = 100% − customer churn. For revenue they come apart, because net revenue retention includes upgrades, so it can exceed 100% while revenue churn is still positive.

Do failed payments count as churn?

Not until the subscription is actually cancelled. A subscription whose payment failed is still counted in MRR while it is past_due, because the customer hasn't left. If it never recovers and cancels, it churns then.

Does pausing a subscription count as churn?

Treat a pause as churn if the customer stops paying, and count them as new again when they return. Leaving paused customers in the base keeps MRR looking stable while the money has stopped arriving.

What churn rate do buyers walk away from?

There is no fixed line, but above roughly 10% a month most buyers either drop the price sharply or lose interest, because they would be buying a customer base that replaces itself inside a year. Steady, documented churn at a moderate level is far easier to sell than a low average with one bad month in it.

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Churn is the number that tells a buyer whether your MRR is durable. If you want it calculated from your payment provider instead of your spreadsheet, connect Stripe or RevenueCat to VerifyArr: it is free, read-only, and publishes MRR, growth, churn and your customer count on a page you can show buyers. Or browse verified startups to see how churn reads next to revenue.