What is the formula for monthly churn rate?

Monthly churn rate = (Customers lost during the month / Customers at the start of the month) × 100. For example, if you started the month with 800 customers and 24 cancelled, your monthly churn rate is (24 / 800) × 100 = 3%. Do not include new customers acquired during the month in the starting denominator.

How do you convert monthly churn rate to annual churn rate?

Use the compound formula: Annual Churn Rate = 1 − (1 − Monthly Churn Rate)^12. A 3% monthly churn rate equals 1 − (0.97)^12 = 1 − 0.694 = 30.6% annual churn, not 36%. Multiplying monthly by 12 overstates annual churn because each month's loss reduces the base for the next month.

Should new customers be included in the churn rate denominator?

No, for the simple churn calculation. New customers acquired during the period were not at risk for the full period and should not be in the starting count. Include them in next month's starting denominator. Some teams use an average of start and end counts to approximate mid-period acquisition, but this is only justified in high-growth periods where new additions are large relative to the base.

What is net revenue churn and how is it calculated?

Net revenue churn = (MRR lost to cancellations + MRR lost to downgrades − MRR gained from expansions) / MRR at start of period × 100. When expansion MRR exceeds lost MRR, net revenue churn is negative, meaning the existing customer base grows in revenue even without new customers. Negative net revenue churn is the top-quartile SaaS benchmark.

How do you calculate churn rate for a SaaS company with annual contracts?

For annual contracts, measure churn at renewal: count contracts up for renewal in the period, count non-renewals, and divide. Annual contract churn rate = Non-renewals / Contracts up for renewal × 100. Track this as a monthly metric by assigning each non-renewal to its contract-end month, so you get a consistent monthly signal rather than a lumpy quarterly or annual view.

How to Calculate Churn Rate (With Formula)

The Core Churn Rate Formula

The customer churn rate formula is:

Churn Rate (%) = (Customers Lost in Period / Customers at Start of Period) × 100

If you started January with 1,200 subscribers and ended with 1,140 (60 cancellations, no new signups counted), your January churn rate is (60 / 1,200) × 100 = 5%.

The formula looks simple, but three choices in how you define the inputs produce materially different results: what counts as a "lost" customer, what date you measure the starting count, and whether you include new customers acquired during the period in the denominator.

Three Versions of the Formula

Method	Formula	Use When	Risk
Simple churn	Lost / Start-of-period count	Stable, slow-growth businesses	None significant
Average churn	Lost / ((Start + End) / 2)	High-growth businesses with fast new acquisition	Understates churn in declining cohorts
Cohort churn	Lost from cohort / Cohort start size	Analyzing retention by signup month	Requires clean cohort data

For most SaaS companies, the simple formula is the right default. The average formula is appropriate when you're acquiring customers so quickly that new signups within the period significantly inflate the end count and distort the denominator.

Monthly vs. Annual Churn: The Compounding Trap

Monthly and annual churn do not multiply linearly. A 2% monthly churn rate does not equal 24% annual churn—it equals approximately 21.5%, because each month you're losing 2% of a smaller base. The correct annualization formula is:

Annual Churn = 1 − (1 − Monthly Churn Rate)^12

At 2% monthly: 1 − (1 − 0.02)^12 = 1 − (0.98)^12 = 1 − 0.785 = 21.5% annual churn. For more on this distinction, see monthly vs. annual churn.

Revenue Churn Rate Formula

Revenue churn measures MRR lost, not customer count lost. The formula is:

Gross Revenue Churn (%) = (MRR Lost to Cancellations + MRR Lost to Downgrades) / MRR at Start of Period × 100

Revenue churn and customer churn diverge when high-value and low-value customers cancel at different rates. Losing five $10/month customers (5 logos, $50 MRR) is not the same as losing one $500/month customer (1 logo, $500 MRR). Both produce 5 cancellations in the first case vs. 1 in the second, but the revenue impact is 10× larger in the second. See revenue churn vs. customer churn for a detailed comparison.

Worked Examples

Scenario	Start Customers	Cancellations	Customer Churn	Start MRR	MRR Lost	Revenue Churn
SMB SaaS, Month 1	500	20	4.0%	$25,000	$800	3.2%
Enterprise SaaS, Q1	80	2	2.5%	$200,000	$18,000	9.0%
Mixed segment	1,000	30	3.0%	$90,000	$4,500	5.0%

The enterprise example illustrates why you need both metrics: 2.5% customer churn masks 9% revenue churn because the two churned customers were high-value accounts. Tracking only customer churn in a mixed-segment or enterprise product produces a misleadingly optimistic view.

Common Calculation Mistakes

Including new customers in the denominator: New signups acquired during the period should not be in the starting count for simple churn. They were never at risk for the full period.
Counting paused accounts as churned: Paused subscriptions are not cancellations. Count them as churned only when they formally cancel, not when they pause.
Mixing monthly and annual subscribers: Annual subscribers who don't renew contribute to churn in the month their contract expires, not when you notice it. Align recognition to contract end date.
Annualizing by multiplication: Multiplying monthly churn by 12 overstates annual churn. Always use the compound formula: 1 − (1 − m)^12.

What to Do With the Number

A churn rate is only useful in context. Compare it against segment benchmarks from Recurly or Baremetrics, break it down by cohort and customer tier, and track it as a trend over rolling 90-day windows rather than point-in-time snapshots. For benchmark context, see what is a good churn rate for SaaS.