How to calculate churn rate, and what it really costs you

Here's how to calculate churn rate: take the customers who cancelled during a month and divide by the customers you had at the start of it. If you started the month with 200 paying customers and 10 cancelled, your monthly churn is 10 ÷ 200, or 5%. That one number tells you more about the health of a subscription business than almost any other, because it decides how hard you have to run just to stay where you are.

This guide covers the two kinds of churn worth tracking, the mistakes that make the number lie, and how to turn churn into the figure founders actually care about: what a customer is worth.

Customer churn: the simple version

Customer churn counts people, not money.

Monthly customer churn = customers who cancelled in the month ÷ customers at the start of the month

A few rules keep it honest:

• Use the count at the start of the month. New customers who joined and left in the same month are a separate problem (usually onboarding), and including them in the bottom of the sum flatters the result.
• Count a cancellation when the paying stops, not when someone clicks a button. A customer who cancels on the 3rd but is paid up to the 28th leaves when the period ends.
• Leave out failed payments that recover. A card that fails on Monday and goes through on Thursday isn't churn. One that stays unpaid until the subscription ends is.

Say you run a booking tool for dentists with 200 customers at the start of September. 10 cancel during the month and 18 new ones join. Customer churn is 10 ÷ 200 = 5%, whatever happened with the new sign-ups. You grew to 208 customers, but you lost 5% of the ones you had.

Revenue churn: the version your bank account feels

Customers don't all pay the same. Losing your biggest customer hurts far more than losing your smallest, and customer churn can't tell the difference. Revenue churn can.

Monthly revenue churn = monthly recurring revenue lost to cancellations and downgrades ÷ monthly recurring revenue at the start of the month

Take the same hypothetical business with £6,000 of monthly recurring revenue (MRR) at the start of September. The 10 customers who left were mostly on the cheaper plan and paid £240 a month between them. Revenue churn is £240 ÷ £6,000 = 4%, lower than the 5% customer churn because the customers who left were smaller than average.

If the opposite were true, and the leavers were your bigger customers, revenue churn would be higher than customer churn. That's the more dangerous pattern, and it's easy to miss if you only watch the customer count.

Net revenue churn

Some businesses also track net revenue churn, which takes away the extra revenue from existing customers who upgraded. If the same business gained £300 from upgrades, net revenue churn would be (£240 − £300) ÷ £6,000, which is negative: revenue from existing customers grew even after the cancellations. That's a strong sign customers get more value over time.

What churn costs you: lifetime and lifetime value

Churn becomes much easier to reason about once you turn it into time.

Average customer lifetime (months) = 1 ÷ monthly churn

At 5% monthly churn, the average customer stays 1 ÷ 0.05 = 20 months. At 3%, about 33 months. At 7%, about 14.

Multiply that by what a customer pays and you get lifetime value (LTV): what an average customer brings in before they leave.

Lifetime value = average monthly revenue per customer × average lifetime in months

In the example, customers pay £30 a month on average, so at 5% churn each one is worth about £30 × 20 = £600. Cut churn to 4% and the lifetime becomes 25 months, worth £750. Nothing else changed: same price, same product, a quarter more value from every customer.

That's why churn deserves attention before most other growth work. It quietly sets the ceiling on what you can afford to spend to win a customer.

How churn compounds over a year

Monthly churn looks small. Over a year it isn't.

At 5% a month, almost half of today's customers are gone within a year. Every one of them has to be replaced by a new sign-up before you've grown at all. If your new sign-ups only just cover your churn, the business can feel busy and still stand still.

You can try your own numbers in the free churn calculator, which works out customer churn, revenue churn, lifetime and lifetime value in one go.

Mistakes that make churn look better than it is

• Averaging over a quarter without saying so. Three months of cancellations divided by one month's customer count makes churn look three times worse. Three months divided by the count at the start of the quarter, then reported as "monthly", makes it look better than it is. Pick monthly and stick to it.
• Ignoring annual plans. A customer on a yearly plan can only churn once a year. If a third of your customers are annual, a calm month may just mean few renewals were due. Look at churn for monthly and annual customers separately.
• Counting paused accounts as active. If someone isn't paying, they aren't a customer this month.
• Looking at one month. One bad month can be noise. A rising line over three or four months isn't.

What to do about it

Start with who's leaving and when. Churn that clusters in the first one or two months is usually an onboarding problem: customers never got the value they signed up for. Churn spread evenly over time is more often about price, a competitor, or the product not keeping up.

Two cheap fixes help almost every subscription business:

1. Chase failed payments quickly. Some churn isn't a decision at all, just an expired card. A short, friendly message asking a customer to update their details often saves the subscription.
2. Ask everyone who leaves why. One sentence, sent personally. The answers are the most useful product research you'll get.

Scenario does both from your Stripe data: it shows which customers are at risk, flags failed payments, and drafts the message for you. You can see how it works on the live demo.

The takeaway

Calculate churn every month, the same way each time: cancellations ÷ customers at the start of the month. Track revenue churn next to it, turn it into a lifetime with 1 ÷ churn, and remember that a point of churn saved is worth months of extra revenue from every customer you already have.