What is Churn Rate?
The percentage of customers who stop using a product or cancel their subscription during a given time period.
Definition
Churn rate measures customer attrition. Calculate it by dividing the number of customers lost during a period by the number at the start of that period. A SaaS company with 1,000 customers that loses 30 in a month has 3% monthly churn. There's also revenue churn (sometimes called dollar churn), which measures the revenue lost from cancellations and downgrades. Revenue churn matters more than logo churn because losing a $50K account hurts more than losing five $1K accounts.
Why It Matters
Churn is the silent killer of SaaS businesses. You can grow 20% annually but still shrink if your churn outpaces acquisition. A 5% monthly churn rate means you're replacing more than half your customer base every year. That's a leaky bucket no amount of new logos can fill. RevOps teams track churn to identify at-risk accounts early and intervene before cancellation.
Example
A B2B SaaS company with $10M ARR and 8% annual gross revenue churn loses $800K in recurring revenue each year. Their expansion revenue (upsells, cross-sells) needs to exceed $800K just to break even before any net new customers.