Churn Rate: What Every Subscription Business Should Know in 2027
Churn rate is the share of customers or revenue a business loses over a set period, usually a month, a quarter, or a year. It is one of the first numbers founders, investors, and finance leaders check, because a high figure means growth is leaking out as fast as it comes in.
This guide explains the main types of churn, the formulas with worked examples, typical benchmarks by company type, and practical ways to bring the number down.
- Churn rate measures the customers or revenue lost in a period, so it shows how well a company keeps what it wins
- Customer churn and revenue churn can tell different stories, so track both every month
- A healthy churn rate depends on company type: enterprise software runs lower than small business and consumer plans
- Most churn starts early, so onboarding, support, and billing experience do more than discounts to keep customers
What Is Churn Rate?
Churn rate is the percentage of customers who stop paying, or the percentage of recurring revenue that disappears, during a given period. A streaming service that starts the month with 1,000 subscribers and loses 50 of them has a 5% monthly churn rate. New sign-ups are not counted in this figure.
Companies track churn because it links directly to growth, cash flow, and company value. A software business with strong sales but high churn keeps refilling a bucket with a hole in it. Lower churn means each customer stays longer, spends more over time, and costs less to serve.
Unsure what your business is really losing each month?
Types of Churn Rate Companies Track
Not every lost customer or lost dollar counts the same way. These six views give a full picture of what is leaving and why.
Customer churn rate
Customer churn counts the accounts that cancel or do not renew. A project management tool with 400 customers at the start of the month and 16 cancellations has a customer churn of 4%. It is the simplest view, but it treats a small account and a large account as equal.
Revenue churn rate
Revenue churn measures the recurring revenue lost from subsciption cancellations reasons and downgrades. A company can lose few customers yet lose a lot of revenue if its biggest accounts leave. This view matters most for businesses with a wide gap between small and large contracts.
Gross revenue churn
Gross revenue churn counts only the revenue that was lost, with no credit for upgrades or new sales. It shows the raw damage from cancellations and downgrades. Finance teams use it to see the real size of the leak before any growth hides it.
Net revenue churn
Net revenue churn subtracts expansion revenue, such as upgrades and add-ons, from the revenue lost. If upgrades from existing customers are larger than the losses, the figure turns negative. Many software companies treat negative net churn as a strong sign of product value.
Voluntary churn
Voluntary churn happens when a customer decides to leave. Common reasons include a missing feature, a better offer from a competitor, or a change in budget. A telecom provider, for example, often sees this type of churn when a rival launches a cheaper plan.
Involuntary churn
Involuntary churn happens when a customer leaves without choosing to, usually because of a failed card payment or an expired payment method. It is often the easiest type to reduce, since the customer still wants the service. Subscription companies often find that a meaningful share of their total churn falls in this group.
Revenue365 brings subscriptions, invoices, and revenue changes into one place, so finance can see every movement.
Churn Rate Formulas With Examples
Use the same formula every period so your results stay comparable.
Customer Churn Rate
Customer churn rate measures the percentage of starting customers who leave during a specific period. Count only customers who were active at the beginning of that period.
- Formula:
Customer churn rate = (Customers lost ÷ Customers at the start) × 100 - Example:
An accounting software company starts the quarter with 500 customers and loses 25 of them. - Solution:
(25 ÷ 500) × 100 = 5% quarterly customer churn
Revenue Churn Rate
Revenue churn from cancellations measures the percentage of starting recurring revenue lost when customers cancel. To measure gross revenue churn, include losses from downgrades as well.
- Formula:
Revenue churn from cancellations = (Recurring revenue lost to cancellations ÷ Starting recurring revenue) × 100 - Example:
A company starts with $120,000 in monthly recurring revenue and loses $6,000 from cancellations. - Solution:
($6,000 ÷ $120,000) × 100 = 5% revenue churn
Net Revenue Churn
Net revenue churn measures recurring revenue lost from cancellations and downgrades after subtracting revenue gained from existing customer upgrades. It excludes revenue from new customers.
- Formula:
Net revenue churn = [(Cancellation revenue + Downgrade revenue − Expansion revenue) ÷ Starting recurring revenue] × 100 - Example:
A company starts with $120,000 in monthly recurring revenue. It loses $6,000 from cancellations and $2,000 from downgrades while gaining $5,000 from upgrades. - Solution:
($6,000 + $2,000 − $5,000) ÷ $120,000] × 100
= ($3,000 ÷ $120,000) × 100
= 2.5% net revenue churn
Annual Churn Rate From Monthly Churn
Annual churn estimates the percentage of starting customers lost over a year when the monthly churn rate stays constant. It accounts for the shrinking customer base each month.
- Formula:
Annual churn rate = [1 − (1 − Monthly churn rate)¹²] × 100 - Example:
A company has a constant monthly churn rate of 3%, entered as 0.03 in the formula. - Solution:
[1 − (1 − 0.03)¹²] × 100
= [1 − 0.97¹²] × 100
≈ 30.6% annual churn
Churn Rate and Retention Rate
Customer retention strategies rate measures the percentage of starting customers who remain at the end of a period. Churn and retention must cover the same period and starting customer group.
- Formula:
Customer retention rate = 100% − Customer churn rate - Example:
A company records a quarterly customer churn rate of 5%. - Solution:
100% − 5%
= 95% customer retention
Tired of rebuilding churn sheets every month?
Average Churn Rate by Company Type
Benchmarks differ by source and market, so treat these ranges as rough guides, not fixed targets.
Enterprise software companies
Enterprise vendors sell large annual or multi-year contracts, so churn is usually low. Many industry reports place annual customer churn for this group in the low to mid single digits. Long contracts and deep integrations make switching slow and costly.
Small and mid-sized business software
Smaller customers have less switching cost and tighter budgets. Monthly churn of roughly 3% to 7% is commonly cited for this group. Companies in this space focus heavily on onboarding, since most cancellations happen in the first few months.
Consumer subscription apps
Streaming, fitness, and learning apps face the highest churn, since a customer can cancel in a few taps. Monthly figures of 5% to 10% are common. Content updates, free trials that convert well, and annual plans help these companies hold on to subscribers.
Telecom and internet providers
Telecom companies usually report monthly churn of around 1% to 3%. Contracts, device payments, and bundled services slow customers down.
Membership and fitness businesses
Gyms, clubs, and associations see churn rise after the first few months and around the new year. Members who visit often rarely leave, so these businesses track attendance as an early warning for churn.
Professional and managed services
Agencies, consultancies, and managed service firms run on contracts and renewals. Their churn shows up as lost clients at renewal time, and each loss is large. A single missed renewal can change a quarter, so account reviews happen well before the contract ends.
Proven Ways to Reduce Churn Rate
Cutting churn rarely comes from one big move. These six habits work across most company typ
Fix onboarding first
Most customers who leave never reached their first win. A short setup guide, a named contact, and a clear first goal help new customers see value fast. Software firms often track the time from sign-up to first use as a leading signal for later churn.
Watch usage signals
A drop in logins, support tickets that go unanswered, or unused paid seats usually come before a cancellation. Companies that review these signals weekly can reach out while the customer is still open to help.
Make billing easy to understand
Surprise charges and confusing invoices push customers away. Clear invoices, predictable renewal dates, and simple plan names build trust. Fixing failed payments with reminders and backup payment options also cuts involuntary churn without any extra selling.
Offer flexible plans
Some customers leave only because a plan no longer fits. Options to pause, downgrade, or switch billing cycles let them stay at a smaller level instead of leaving fully.
Ask why customers leave
A two-question exit survey shows patterns that dashboards miss. If many customers name the same missing feature or price concern, the product and pricing teams get a clear task.
Grow accounts that already work
Customers who use more of a product tend to stay longer. Relevant add-ons, training sessions, and regular check-ins raise the value of each account. Expansion revenue also lowers net revenue churn, even when a few accounts still leave.
Ready to act on churn before the next renewal?
Revenue365 helps finance and sales see billing and plan changes together, so action starts early.
How Revenue365 Helps Companies Track Churn Rate
Revenue365 is the SaaS billing and revenue management platform from Apps365. It gives finance teams one place to see how recurring revenue moves each month.
One place for subscription and invoice data
When plans, invoices, and payments sit in separate files, churn numbers change depending on who built the report. Revenue365 keeps this data in one record, so everyone reads the same figures.
Reporting and analytics for recurring revenue
Reporting and analytics in Revenue365 shows revenue by plan and period. Finance can spot rising cancellations or downgrades early, then compare each month with the last one.
Plan changes recorded with CPQ
Upgrades, downgrades, and custom quotes affect net revenue churn directly. Revenue365 CPQ SaaS records each pricing change, so expansion and contraction are easy to separate in reports.
CRM connection for shared customer views
Sales sees the customer relationship, and finance sees the payments. With the CRM integration, both sides work from the same customer record, which helps when an account shows early churn signs.
Accurate invoices that reduce billing friction
Billing mistakes upset customers and create avoidable cancellations. Revenue365 automates invoicing, which helps companies send correct invoices on time and cut one common reason customers leave.
Conclusion
Churn rate shows how well a company keeps the customers and revenue it works hard to win. Customer churn, revenue churn, and net revenue churn each tell part of the story, so tracking all three gives a fair view. Use one formula each period, compare against benchmarks for your own company type, and look at annual churn, not only the monthly number
Lowering churn is a steady habit: strong onboarding, early warning signals, clear billing, flexible plans, honest exit feedback, and growth inside existing accounts. Companies that keep revenue data in one place spot problems sooner and act while customers are still willing to stay.
Looking for a billing platform that supports churn tracking?
See how Revenue365 connects billing, reporting, and CRM data in a live demo.
Frequently Asked Questions
What is a good churn rate?
It depends on company type. For many business software companies, annual churn under 10% is considered healthy, while consumer subscription apps often run higher. Compare your churn with similar companies, not with the whole market.
What is the difference between churn rate and retention rate?
Churn shows the share of customers or revenue lost, and retention rate shows the share kept. For customer counts, retention equals 100% minus churn. A 5% churn means 95% retention.
How do you calculate monthly churn rate?
Divide the customers lost in the month by the customers at the start of the month, then multiply by 100. For example, losing 20 of 400 customers gives a monthly churn of 5%.
Why is churn rate important for SaaS companies?
SaaS companies earn through repeat payments, so each lost customer cuts future revenue, not only one sale. High churn also raises the cost of growth, since new customers must replace the ones who left.
Can churn rate be negative?
Yes, but only for net revenue churn. It happens when upgrades and add-ons from existing customers are larger than the revenue lost from cancellations and downgrades. Customer churn cannot be negative.
