Churn Rate

By Federico Donatone · Updated October 15, 2026

Definition

Churn rate is the percentage of customers, or of recurring revenue, that a company loses during a period. Customer churn counts accounts that cancel or do not renew. Revenue churn counts the recurring revenue lost to cancellations and downgrades. Subscription businesses track churn rate monthly or yearly because it limits how fast they can grow.

How to calculate churn rate

FormulaCustomer churn rate = Customers lost in the period ÷ Customers at the start of the period × 100For example, if you start the year with 80 customers and 6 cancel or do not renew, annual customer churn is 6 ÷ 80 × 100 = 7.5%.

FormulaGross revenue churn rate = (Churned MRR + Contraction MRR) ÷ MRR at the start of the period × 100If you start a month with $100,000 MRR and lose $2,000 to cancellations and $1,000 to downgrades, gross revenue churn is $3,000 ÷ $100,000 × 100 = 3%.

From our workKeep customers acquired during the period out of the denominator. Report customers who sign and cancel in the same period on their own line, because they point to a sales or onboarding problem.

Do not multiply a monthly churn rate by 12 to get an annual one. Churn compounds, because each month's loss comes from a smaller base:

FormulaAnnual churn rate = 1 - (1 - Monthly churn rate)^12For example, at 2% monthly churn, annual churn is 1 - 0.98^12 = 0.215, or about 21.5%, not 24%.

Customer churn vs revenue churn

	Customer churn	Revenue churn
Counts	Accounts lost	Recurring revenue lost
Includes downgrades	No	Yes
Best for	Many accounts of similar size	Accounts of very different sizes
Blind spot	Losing one big account looks minor	Many small losses can hide

Net revenue churn goes one step further and subtracts expansion from existing customers. When upgrades are larger than cancellations and downgrades, net churn turns negative. That is the same as net revenue retention above 100%.

What causes churn in B2B

Split churn into two kinds first. Involuntary churn is a failed payment or an expired card: the customer did not decide to leave, and better billing recovery often fixes it. Voluntary churn is a decision, and it is often made before the contract is even signed. The usual causes:

Poor fit: the customer was outside the ideal customer profile and was sold anyway.
Promise gap: sales described an outcome the product or service does not deliver.
Slow time to value: the customer never reaches a first useful result.
Lost champion: the person who bought leaves, and nobody else owns the tool.
Budget cuts: the product is seen as nice to have, not tied to revenue or cost.

The first two start in sales. A clean handoff from the sales call to onboarding helps. Our guide on how to automate sales operations shows how to capture what was promised on each call so the delivery team works from the same record.

How to lower churn rate

Tighten qualification so poor-fit deals do not close.
Write down what was promised on each sales call and pass it to onboarding.
Define the first useful result for a new customer and measure the days it takes to reach it.
Build relationships with several people at each account, so one departure does not end the contract.
Tag the cause of every lost account, then fix the largest repeating cause first.

Good sales discovery questions catch poor fit early, when saying no still costs nothing. Track churn by the lead source and the seller of each lost account too: if one channel's customers leave faster, that cost belongs in the channel's customer acquisition cost.

Churn Rate FAQ

What is a good churn rate?

It depends on your segment and contract length, so compare against your own past cohorts rather than another company's number. Annual contracts hide churn until renewal, while monthly plans show it right away. The useful question is whether churn is falling over time and which cause drives it.

What is the difference between churn rate and retention rate?

They are two sides of the same count. Customer retention rate is the share of starting customers still active at the end of the period, so retention equals 100% minus customer churn. Revenue retention metrics such as net revenue retention also add expansion.

What is negative churn?

Negative churn happens when expansion revenue from existing customers is larger than the revenue lost to cancellations and downgrades. The existing customer base grows on its own, even before any new customer signs. It is another way of saying net revenue retention is above 100%.

Related terms

Net Revenue RetentionNet revenue retention (NRR) is the percentage of recurring revenue a company keeps from an existing group of customers over a period, after adding expansion and subtracting downgrades and churn. Revenue from new customers is excluded. NRR above 100% means the existing base grows on its own. Below 100% means it shrinks. MRRMRR (monthly recurring revenue) is the predictable subscription revenue a company earns in one month from all active customers, with every contract converted to a monthly amount. It excludes one-time fees and services. Subscription businesses track MRR to see growth early, because new deals, upgrades, downgrades and cancellations show up in it within weeks. Customer Lifetime ValueCustomer lifetime value (CLV, often called LTV) is an estimate of the total gross profit a company earns from one customer over the whole relationship, from first payment to cancellation. Subscription businesses usually calculate it from average revenue per account, gross margin and churn rate. It sets the ceiling on what you can spend to win a customer. Ideal Customer ProfileAn ideal customer profile (ICP) is a description of the type of company that gets the most value from your product and brings you the most value in return. A B2B ideal customer profile lists testable traits such as industry, size, location and a buying trigger, so sales and marketing know which accounts to pursue and which to skip. Discovery CallA discovery call is the first in-depth sales conversation with a prospect, held to understand their situation, problem and goals and to decide together whether there is a fit worth pursuing. A good discovery call ends with a clear next step, such as a demo, a proposal or a meeting with other decision makers. MultithreadingMultithreading in sales is the practice of building relationships with several people inside a target account instead of relying on one contact. A multithreaded deal has links to the decision maker, the users, technical evaluators and others in the buying group, so it survives when one person goes quiet, changes jobs or loses influence.