Churn
The rate at which customers stop using or paying for a product over a given period. Usually expressed as a monthly or annual percentage.
Churn measures customers leaving. The basic formula:
Churn rate = customers lost in period / customers at start of period
Two variants worth knowing:
- Customer churn (or logo churn) — % of customers leaving
- Revenue churn (or gross dollar churn) — % of recurring revenue leaving
The two diverge because not all customers are equal-revenue. Losing one $50k/yr customer matters more than losing twenty $100/yr customers, even though the customer-churn % might be lower.
Typical SaaS benchmarks
- Consumer subscription: 5–10% monthly churn is normal; below 5% is excellent
- SMB SaaS: 2–5% monthly churn typical; above 8% is concerning
- Mid-market SaaS: 1–2% monthly churn typical
- Enterprise SaaS: 5–10% annual churn is typical; monthly churn is the wrong unit
Why it dominates LTV
Churn rate appears in the denominator of customer lifetime: lifetime ≈ 1/churn. A 5% monthly churn → 20-month lifetime. A 2% monthly churn → 50-month lifetime. Halving churn more than doubles LTV.
This is why "improve retention" is the highest-leverage growth strategy for most subscription businesses — moving churn from 5% to 4% increases LTV by ~25% with no change in acquisition.
Voluntary vs involuntary
- Voluntary churn — customer chooses to leave
- Involuntary churn — payment fails (expired card, declined transaction); customer didn't choose to leave but the system treated them as gone
For consumer SaaS, involuntary churn can be 30–50% of total churn. Dunning (re-trying failed payments) and updating-card-on-file flows recover most of it. Companies that confuse the two will mis-attribute their churn problem.