What is Churn Rate?
Churn Rate (or simply "Churn") is the percentage of your customers who cancel their subscription or stop paying you during a given time period. It is the opposite of "Retention."
In the startup world, Churn is often described using the "Leaky Bucket" analogy: no matter how much water (new customers) you pour into the top, the bucket will never fill up if there are holes in the bottom (churn).
The Two Types of Churn
- Revenue Churn: The percentage of revenue you lose. This is often more important for B2B SaaS, because losing one customer paying £10k is worse than losing ten customers paying £10.
Customer Churn (Logo Churn): The percentage of customers you lose.
(Lost Customers ÷ Total Customers at Start of Month) × 100
Why it kills growth If you have a monthly churn rate of 5%, you are losing roughly 50% of your customer base every year. To grow, you don't just need to find new customers; you have to find enough new customers to replace the half you lost plus add growth on top. This becomes mathematically impossible as you scale.
What is a "Good" Churn Rate? Benchmarks vary wildly by industry:
- Enterprise B2B: Low churn (< 1% per month). Contracts are annual and sticky.
- Consumer (B2C): High churn (3% – 7% per month). Consumers are fickle and cancel Netflix/Spotify easily.
Negative Churn The "Holy Grail" of SaaS is Net Negative Churn. This happens when the expansion revenue from your existing customers (upgrades, upsells) is greater than the revenue lost from cancellations. Even without adding a single new customer, your revenue grows.
Key Takeaway: You cannot out-market a high churn rate. If retention is bad, fix the product before spending money on acquisition.
