What is Churn Rate? Complete Guide

Detailed Explanation

Churn rate measures customer attrition—the opposite of retention. There are two types: customer churn (% of customers lost) and revenue churn (% of MRR lost). Revenue churn is more important for SaaS because losing 10 small customers might be less impactful than losing 1 whale customer. Churn is the silent startup killer—5% monthly churn means you lose half your customers every year. Even worse, it compounds: if you add 100 customers/month but churn 5%/month, after 12 months you only have 788 customers, not 1,200. High churn destroys unit economics (LTV plummets), makes CAC payback impossible, and prevents compounding growth. The best companies have negative churn through expansion revenue—existing customers spend more over time, offsetting any losses.

Real-World Examples

Netflix

Maintains 2-3% monthly churn globally (24-36% annual churn). In India, churn is higher (5-7% monthly) due to price sensitivity and competition. They combat churn through content localization, family plans, and mobile-only plans. Even 3% monthly churn means 31% annual churn—which is why they spend $17B/year on new content to keep subscribers engaged.

Spotify

Has ~5% monthly churn for paid subscribers. Their strategy: free tier acts as re-engagement channel. If paid users churn, they fall back to free (not lost entirely), and can be re-converted later. This "soft churn" approach reduces hard churn to ~3% monthly.

Slack (pre-Salesforce acquisition)

Enterprise customers had <1% annual churn (~0.08% monthly)—exceptionally low. SMB customers had 15-20% annual churn (~1.5% monthly). The difference? Enterprise had high switching costs (integrations, workflows), while SMBs could churn easily. Taught them to focus on moving upmarket.

Why It Matters for Your Startup

Churn rate directly determines your LTV and business viability. If churn is >5% monthly, you can't build a sustainable SaaS business—you're on a treadmill, constantly replacing churned customers. Reducing churn from 5% to 3% monthly can 2x your LTV and make your unit economics profitable. For fundraising, investors want to see <3% monthly churn for B2B SaaS, <5% for B2C. High churn signals weak product-market fit, poor onboarding, or wrong target customer. Every 1% reduction in churn is worth more than 1% increase in acquisition—fix churn before scaling marketing.

Common Mistakes

❌Only tracking customer churn, not revenue churn—losing a $10K/month customer is worse than 10 $100/month customers

❌Not cohort analyzing churn—aggregate churn hides the fact that month 1 customers might churn at 10% while month 6 customers churn at 2%

❌Ignoring involuntary churn—failed payments, expired cards account for 20-40% of churn and can be recovered with dunning

❌Accepting churn as inevitable—great products have <2% monthly churn; if yours is 5%, that's a product/market fit problem

❌Not surveying churned customers—you'll never know why people leave unless you ask them

❌Focusing on acquisition instead of retention—if churn >5%, adding more customers just accelerates the death spiral

Frequently Asked Questions

What's an acceptable churn rate?

B2B SaaS: 1-3% monthly (12-36% annual). B2C SaaS: 3-5% monthly (36-60% annual). Consumer apps: 5-10% monthly (60-100% annual). Enterprise: <1% annual. If you're above these benchmarks, you have a retention problem that will kill growth.

How do I reduce churn?

Improve onboarding (get users to "aha moment" faster), enhance core value delivery, add integrations (increase stickiness), move upmarket (larger customers churn less), implement proactive customer success, create annual contracts (reduces churn opportunity), fix involuntary churn (dunning management), and survey churned users to understand why they left.

Is 0% churn possible?

No, but you can have negative net revenue churn. Example: you lose 5% of customers monthly but remaining customers expand spending by 7%, resulting in -2% net revenue churn (revenue grows despite customer loss). Slack, Snowflake, and Datadog achieved this.

Should I prevent all churn?

No. Some churn is healthy—churning bad-fit customers who don't get value is good (they're expensive to support and won't expand). Focus on preventing churn from ideal customers. Let wrong-fit customers churn and refine targeting to avoid acquiring them in the first place.

Churn Rate

Quick Definition