If my monthly churn rate is 2%, what is my annual retention rate?

Your annual retention rate is approximately 78.6%, not 76%. You calculate it by compounding: (1 − 0.02)^12 = 0.98^12 ≈ 0.786. Never multiply monthly churn by 12 to get annual churn—that ignores the compounding effect and systematically overstates your annual loss rate.

What is the difference between gross retention and net retention?

Gross retention (GRR) counts only revenue losses—cancellations and downgrades—and is always 100% or below. Net revenue retention (NRR) adds expansion revenue (upsells, seat additions, usage overages) on top of gross retention and can exceed 100%. A company can have 90% GRR and 115% NRR if expansions outpace cancellation losses.

Should I track churn rate or retention rate for my SaaS dashboard?

Track both, but use retention rate as your primary north-star metric for team alignment because it is forward-looking and compounds positively. Use churn rate for diagnostic work—segmenting where customers are leaving and measuring the impact of retention experiments. Most benchmark databases report retention, making it easier to contextualize your performance against peers.

Can churn rate be negative?

Customer churn rate cannot be negative—you cannot un-cancel customers in a given period beyond the starting count. However, net revenue churn (sometimes called net MRR churn) can be negative when expansion revenue from existing customers exceeds revenue lost to cancellations and downgrades. Negative net revenue churn is a strong sign of product-market fit and a growing business, even with modest customer losses.

How do churn rate and retention rate differ for annual vs monthly subscribers?

For annual subscribers, you typically measure retention at renewal. If 80 of 100 annual subscribers renew, your annual logo retention rate is 80% and annual churn is 20%. For monthly subscribers, you measure monthly. The key difference is the compounding interval—annual contract churn is a one-time event per year, not a monthly compounding rate, so you cannot convert the two directly without knowing the contract mix.

Churn Rate vs Retention Rate: How They Relate

The Basic Relationship

For any single measurement period, churn rate and retention rate are exact complements. If you start a month with 1,000 customers and end with 950, your monthly churn rate is 5% and your monthly retention rate is 95%. One follows from the other: retention rate = 1 − churn rate, and churn rate = 1 − retention rate.

This appears simple, but the two metrics behave differently when you extend the analysis across multiple periods. Compounding makes the gap between them meaningful—and choosing the wrong one for a given decision leads to misleading conclusions.

Why They Diverge Over Time

Consider a SaaS product with 3% monthly churn. The monthly retention rate is 97%. Over 12 months, the annual retention rate is not 97% × 12—it is 0.97 raised to the power of 12, which equals approximately 69%. That means 31% annual customer churn, not 36% (3% × 12).

This compounding effect is why many SaaS founders underestimate the impact of monthly churn on their annual customer base. A 3% monthly churn rate sounds manageable, but it means losing nearly a third of your customers every year.

Monthly Churn Rate	Monthly Retention	Annual Retention (Compounded)	Customers Lost per Year (from 1,000)
1%	99%	88.6%	114
2%	98%	78.6%	214
3%	97%	69.4%	306
5%	95%	54.0%	460
8%	92%	36.9%	631
10%	90%	28.2%	718

Customer Retention Rate vs. Revenue Retention Rate

The churn-vs-retention question becomes more complex when revenue enters the picture. You can have positive customer retention (more customers each month) alongside negative revenue retention if customers are consistently downgrading. Conversely, you can have negative customer retention (losing customers) with positive net revenue retention (NRR) if remaining customers are expanding fast enough.

Net revenue retention is generally the more important metric for SaaS business health because it captures the full revenue dynamic of the existing customer base. A company with 95% customer retention but 85% NRR has a serious downsell problem. A company with 90% customer retention but 110% NRR is growing its revenue base from existing customers alone.

For a detailed breakdown of how revenue metrics interact, see net revenue retention and the churn rate formula guide.

Which Metric to Use When

The choice between reporting churn or retention depends on the audience and the decision being made:

Use churn rate when diagnosing a problem, tracking improvement efforts, or communicating urgency. Churn focuses attention on the loss, which motivates action.
Use retention rate when presenting to investors or board members, modeling LTV, or comparing against cohort benchmarks. Retention is the standard format for most industry benchmarks.
Use both when modeling future revenue. Churn drives the loss side of the forecast; NRR captures the full picture including expansion.

One practical rule: never convert between monthly and annual by multiplication. Always use the compounding formula: annual retention = (1 − monthly churn)^12. See the full conversion math in the monthly vs. annual churn guide.

Logo Retention vs. Revenue Retention

The industry also distinguishes between logo retention (percentage of customer accounts retained) and revenue retention (percentage of revenue retained). Logo retention treats a $5,000/month account and a $50/month account equally. Revenue retention weights them by their actual value.

For SMB SaaS with homogeneous contract sizes, logo and revenue retention track closely. For mid-market and enterprise products with wide ARPU ranges, they can diverge significantly. A product that consistently loses small accounts while retaining large ones will show low logo retention but high revenue retention—a healthy pattern. The reverse signals that high-value customers are churning while low-value customers stay, which is an acute problem.

Benchmark Comparison

Metric	Good (B2B SMB)	Good (B2B Enterprise)	Concerning
Monthly Customer Retention	97–98%	99%+	<95%
Annual Logo Retention	80–90%	90–95%	<75%
Annual Net Revenue Retention	100–110%	110–130%	<90%

For the full context on cohort-level retention measurement, see how to do cohort retention analysis.