Churn and retention are two sides of the same coin
Churn rate is the percentage of customers who cancel, cease purchasing, or otherwise leave a business over a given period. Retention rate is the percentage of customers who remained through that same period — the complement of churn, so the two figures always sum to 100%. Both are among the most closely watched health metrics for recurring-revenue businesses, since churn directly affects customer lifetime value and the sustainability of growth.
The monthly math, worked
Monthly churn rate is customers lost divided by customers at the start of the period, expressed as a percentage. With 2,000 customers at the start of the month and 40 lost during it, monthly churn is 40 ÷ 2,000 = 2%, and retention is 100% − 2% = 98%.
- Monthly churn rate = (customers lost ÷ customers at start) × 100 → 40 ÷ 2,000 = 2%
- Retention rate = 100 − monthly churn rate → 100% − 2% = 98%
- Average customer lifetime (months) = 100 ÷ monthly churn rate → 100 ÷ 2 = 50 months
Why annualized churn is much higher than 12 × the monthly rate
A common mistake is multiplying the monthly churn rate by 12 to estimate the annual figure. That understates the true effect, because a business doesn't lose the same customers twice — each month's churn applies to a progressively smaller surviving base. The correct approach compounds monthly retention over 12 months and subtracts from 100%: 1 − (1 − 0.02)^12 ≈ 21.5%.
That means a modest-looking 2% monthly churn rate compounds to roughly 21.5% of the starting customer base lost over a full year — a reminder that even small monthly churn adds up faster than a simple multiplication suggests once compounding is accounted for.
From churn rate to expected customer lifetime
The average customer lifetime implied by a churn rate is the mathematical inverse of the rate: 100 ÷ 2 = 50 months in this example. This is a common simplification used across SaaS metrics frameworks, including David Skok's SaaS Metrics 2.0, to translate a churn percentage into an expected relationship duration — and it's the same figure that feeds directly into the standard customer lifetime value (CLV) formula, where a lower churn rate produces a proportionally higher CLV.
Logo churn vs revenue churn
This kind of churn calculation measures customer-count churn — often called 'logo churn' — not revenue churn, which can tell a different story when the customers who leave have different average revenue than the overall base. A business can show low logo churn while revenue churn is elevated, if it's disproportionately the larger accounts that are leaving, or the reverse. Tracking both, rather than either alone, gives a fuller picture of retention health.
Questions fréquentes
How do you calculate monthly churn rate?
Divide the number of customers lost during the month by the number of customers at the start of the month, then express the result as a percentage. With 2,000 customers at the start and 40 lost, monthly churn is 40 ÷ 2,000 = 2%.
Why is annualized churn so much higher than 12 times the monthly rate?
Annualized churn compounds the monthly retention rate across 12 periods rather than simply multiplying the monthly churn rate by 12, because each month's churn applies to a progressively smaller surviving base. A 2% monthly churn rate compounds to roughly 21.5% annualized, reflecting that compounding effect.
What is the difference between logo churn and revenue churn?
Logo churn measures the percentage of customers lost, regardless of their size. Revenue churn measures the percentage of recurring revenue lost, which can differ meaningfully if the customers who churn have different average revenue than the overall customer base.
How does churn rate relate to customer lifetime value?
Churn rate is a direct input to CLV — the standard simplified formula divides gross-margin-adjusted revenue by churn rate, so a lower churn rate produces a higher expected lifetime value. The average customer lifetime (1 ÷ churn rate, in months) used in churn analysis is the same figure used in the CLV formula.
Références
- Skok D. SaaS Metrics 2.0 — A Guide to Measuring and Improving What Matters. forEntrepreneurs.com.
- Bessemer Venture Partners. State of the Cloud / Cloud Index — SaaS benchmark metrics. bvp.com.
- Kotler P, Keller KL. Marketing Management. 15th ed. Pearson, 2016.