Churn rate: what it is and why it matters

Churn rate is the percentage of customers, users or subscribers who stop doing business with you in a given period. In other words, churn rate shows how fast your customer base or revenue is leaking.

Basic definition and formula

Most teams define churn rate as the number of customers lost during a period divided by the number of customers at the start of that period. You usually express churn rate as a percentage and calculate it monthly or annually.

For example, if you start the month with 1,000 customers and 40 cancel, your monthly churn rate is 40 / 1000 × 100 = 4%. The same logic applies to revenue churn, where you use lost recurring revenue instead of customers.

Why churn rate is critical for B2B and e‑commerce

For subscription, SaaS and e‑commerce businesses, churn rate is a direct signal of product value, customer experience and long term growth. A low churn rate means customers stay, buy again and your marketing spend compounds. A high churn rate means you are constantly replacing lost customers just to stand still.

Growth teams often combine churn rate with metrics like customer lifetime value and payback period. If you work with recurring revenue, you can also plug churn into core formulas like net revenue retention and LTV, as explained in detail in this guide to calculating B2B SaaS metrics.

Types of churn rate you should track

To get a useful view of churn rate, most companies split it into a few variants. This makes it easier to diagnose problems and focus your experiments.

  • Customer churn rate The percentage of customers or accounts that cancel in a period.
  • Revenue churn rate The percentage of recurring revenue lost from downgrades and cancellations.
  • Gross vs net churn Gross churn looks only at lost customers or revenue, net churn offsets that loss with expansion from existing customers.
  • Segmented churn Churn rate broken down by cohort, country, channel, pricing plan or customer type.
  • Time based churn Churn rate in the first 30, 60 or 90 days of a new customer relationship.

Together, these views of churn rate help you see whether you are losing the wrong customers, attracting the wrong audience or leaving expansion revenue on the table.

How to use churn rate to drive action

On its own, churn rate is a health signal. The real value comes when you connect churn rate to concrete actions in product, marketing and customer success. For example, you can map churn spikes to specific channels, campaigns or promises in your messaging.

E‑commerce teams use churn rate on repeat customers or subscribers to refine their email flows, reorder campaigns and loyalty programs. B2B and SaaS companies use churn rate to improve onboarding, pricing, long term contracts and success playbooks.

For a growth minded founder or CMO, the goal is simple. Keep churn rate low enough that each new customer you win stays long enough to justify your acquisition cost and fuel predictable, compounding growth.