Churn Rate: Definition, Calculation & 10 Strategies to Reduce It
Churn rate measures the percentage of customers who cancel their subscription over a given period. It's the most critical retention metric for SaaS: high churn erodes your MRR, reduces your LTV, and makes growth impossible.
Beyond the number of customers lost, what really matters is the financial impact of churn on your MRR.
Table of Contents
What is churn rate?
Churn rate measures the percentage of customers who cancel their subscription over a given period.
The term "churn" comes from the butter churn, which evokes a constant back-and-forth movement. In SaaS, it represents the constant flow of customers leaving and arriving.
The most commonly used period for calculating churn is the month, as it provides sufficiently granular data to track classic SaaS metrics.
Revenue churn: the metric that truly matters
Beyond the number of customers lost, what truly matters is the financial impact of churn. That's why we also track revenue churn, which measures the percentage of MRR lost over a period.
This metric is more critical because it reflects economic reality: losing 10 small customers at $50/month (-$500) doesn't have the same impact as losing 1 large customer at $5,000/month (-$5,000), even though the number of customers lost is different.
Why churn kills your SaaS
MRR erosion and neutralized growth
High churn erodes your MRR every month, canceling out your acquisition efforts. Even with a performing sales pipeline, net growth remains negligible.
Take a SaaS at $10,000 MRR that recruits $2,000 in new customers but loses $1,800 from existing customers. MRR increases to $10,200: only +2% growth despite considerable sales efforts.
This phenomenon creates a destructive paradox: with 100 customers at the start of the month, you add 20 (+20%) but lose 15 (-15%). Net growth is only +5%. You must therefore acquire more and more customers simply to maintain your current size, transforming your company into a machine for compensating losses rather than generating growth.
Declining LTV
Churn directly reduces your LTV (Lifetime Value). With an ARPA of $100/month, a 5% churn generates an LTV of $2,000, while a 10% churn brings it down to $1,000. Doubling your churn halves your LTV, directly impacting your LTV:CAC and unit profitability.
Red flag for investors
High churn creates a formidable vicious circle: it forces you to concentrate your resources on costly acquisition simply to compensate for attrition, instead of investing in product improvement, customer success, or innovation.
Worse still, this situation distances you from funding. VCs categorically refuse to invest in a SaaS with monthly churn above 5%, considering that a leaking business model isn't scalable. Without funding, it's impossible to accelerate to escape the rut: you're trapped in a paradox where the problem that requires the most investment is precisely the one preventing you from obtaining it.
"A 7% monthly churn means you're losing 50% of your customers each year. How can you build a sustainable business?" — Jason Lemkin, SaaStr
Track your churn rate in real-time
Benchmarks by segment
Churn benchmarks vary considerably depending on the size of customers targeted. Enterprise companies naturally show lower churn thanks to long-term contracts, deep integration increasing switching costs, and decision-making processes involving multiple stakeholders. Conversely, B2C SaaS experiences higher churn due to short buying cycles and minimal exit friction.
| SaaS Type | Monthly Churn | Annual Churn |
|---|---|---|
| Consumer B2C | 5-10% /month | 60-80% /year |
| SMB B2B | 3-7% /month | 30-55% /year |
| Mid-Market | 1-3% /month | 12-30% /year |
| Enterprise | <1% /month | <10% /year |
Source: SaaStr, ChartMogul, ProfitWell (2024)
The 5 main causes of churn
The timing of churn and its magnitude help refine the diagnosis:
onboarding
market fit
clear value
Failed onboarding
40 to 60% of churn occurs in the first 90 days, mainly because the user doesn't understand how to use the product, doesn't quickly reach their first perceived value (time-to-value too long), or receives no support. Slack measures this "Aha Moment" at 2,000 messages sent as a team, Dropbox at the first shared file.
The challenge is to identify this decisive moment for your product and get each user there as quickly as possible.
Poor product-market fit
High churn in the first 30 days signals a structural problem: you're attracting the wrong customers, or your solution doesn't solve their real problem. No onboarding optimization will compensate for a lack of product-market fit. If this threshold is exceeded, you need to review your targeting or value proposition before investing more in acquisition.
Lack of perceived value
The customer doesn't see the ROI of your solution. If you can't quantify the value created — money or time savings, revenue generation, or risk reduction — churn becomes inevitable. Beyond 30% churn over 90 days, it's a signal of a product without clear value for its market.
Non-existent customer support
67% of customers leave due to poor customer service (source: Zendesk). Warning signs include response times over 24 hours, unresolved tickets, and total lack of proactive Customer Success that passively waits for customers to complain.
Better competitor
The SaaS market is intensely competitive. When a competitor launches a killer feature or offers a superior user experience, your customers migrate quickly. Zoom dethroned Skype through video quality, Notion cannibalized Evernote through its modern interface. The only sustainable defense: continuous innovation coupled with systematic customer listening.
Churn reduction levers
Recover involuntary churn
30 to 40% of churn is unintentional: expired credit card, limit reached, bank change. These customers don't want to leave, their payment simply failed. This is the quickest lever to activate as it requires no product improvement.
Modern payment solutions like Stripe Billing integrate intelligent retry mechanisms: new attempt at D+1, D+3, then D+7. Between each attempt, automated emails invite the customer to update their card. Specialized tools like ProfitWell Retain or ChurnBuster go further by personalizing reminders and typically recover 15 to 25% of failed payments.
Optimize onboarding
Onboarding determines whether the user will reach their "Aha Moment" — that click where the product's value becomes obvious. Loom built its onboarding around a simple goal: record a first video in less than 2 minutes. Result: D+30 churn dropped by 40%.
Effective onboarding combines several mechanisms: contextual tooltips that guide the user at the right time, welcome emails with tangible quick wins, gamified setup checklist that creates progression momentum. For high-value customers, a personalized onboarding call multiplies activation chances.
Anticipate churn through customer success
Proactive customer success detects weak signals before the customer decides to leave. A 50% drop in usage over two weeks, no login for 7 days, several support tickets left unanswered: these indicators trigger immediate intervention.
High-performing teams structure their interventions over time: check-in call at D+30, D+60, and D+90 to ensure the product delivers on its promise. Quarterly business reviews quantify the ROI generated to anchor perceived value. The goal is to identify and correct friction points before they become reasons for departure.
Build a retention-driven product roadmap
Interviews with departed customers often reveal patterns: a critical missing feature, an overly complex interface, a workflow that doesn't match their reality. These insights should directly feed the product roadmap. Tools like Canny or ProductBoard centralize feature requests and allow measuring their recurrence.
The arbitration between these requests remains complex: is a feature requested by 50 customers but requiring 6 months of development a priority over a quick improvement that's less requested? Beyond prioritization frameworks, a sustained release rhythm — at minimum 1 to 2 visible improvements per month — demonstrates that the product is evolving and reassures about its sustainability.
Certain features structurally increase switching costs and anchor the customer in your ecosystem. Integrations with daily workflow tools (Zapier, native APIs) make your product indispensable within an automation chain. Accumulation of historical data creates dependency: Notion knows this well, a customer who has created more than 1,000 pages will never consider migrating elsewhere. Similarly, collaborative adoption — when the entire team uses the tool — multiplies departure inertia. These "stickiness" mechanisms aren't manipulative but stem from product design that naturally maximizes value delivered over time.
Adapt pricing to customer trajectories
A customer who goes directly from your Pro plan at $200/month to cancellation is a missed opportunity. If they had an intermediate Growth plan at $100/month, they might have downgraded rather than churned. Too large gaps between your plans force binary decisions: stay at high price or leave.
The same logic applies to annual commitments: a 10 to 20% discount on annual payment drastically reduces churn by locking in the customer for 12 months. A monthly plan at $100 becomes an annual plan at $1,000 (i.e., 16% discount), mechanically eliminating all monthly churn during the contract period.
Reactivate departed customers
A churned customer isn't permanently lost. Win-back campaigns target these customers with a three-step approach. First contact at D+30 post-churn: a personalized email presents new features launched since their departure and offers a free call to understand the reasons for churn. This conversation often reveals that the initial problem has been resolved in the meantime.
If the departure reason was price, a reactivation offer with 50% discount on the first three months can unlock the situation. The approach works: reactivation rates typically oscillate between 10 and 20%. Beyond the numbers, these exchanges provide valuable insights into what didn't work and fuel continuous product improvement.