The correct formula for SaaS monthly churn rate
How to Calculate Your SaaS Customer Churn Rate
Churn rate is the percentage of customers you lose in a given period. For SaaS, it's the metric that matters most because even a small monthly churn rate compounds into collapse. A 5% monthly churn rate means you lose half your customer base in 14 months—before growth catches up, you're shrinking.
The formula is simple. Take the number of customers you lost in a month. Divide by the number of customers you had at the start of that month. Multiply by 100.
Churn Rate = (Customers Lost / Starting Customers) × 100
A worked example: You start January with 100 customers. By the end of January, 5 have canceled. Your January churn rate is (5 / 100) × 100 = 5%.
What Counts as "Lost"
A churned customer is one whose subscription ended and was not renewed. This includes cancellations, non-renewals after a trial, and—if you operate on annual contracts—customers who don't renew at the anniversary.
Do not count downgrade as churn unless the customer left entirely. If someone moves from your $99 plan to your $29 plan, they're still a customer. Track that separately as downgrade rate if it matters to you; it often matters more than churn.
Do not count customers who paused. If your product allows pauses and the customer intends to resume, they haven't churned.
Calculate It Monthly, Not Annually
Monthly churn rate gives you early warning. Annual churn hides problems until it's late. Calculate churn every month, consistently on the same day. Pick the last day of the month, or the same calendar date each month—whatever is easier to automate in your system.
Cohort Churn Matters More Than Overall Churn
Your overall churn number hides what's actually happening. A customer who signed up last week and churned is not the same as a customer who stayed two years and churned.
Organize customers by their start date. Calculate churn within each cohort. A cohort that loses 3% per month is in trouble. A cohort that loses 2% in month 1, then 0.5% per month after, is healthy—initial churn is normal as bad-fit customers leave, and the rest stick.
Do this in a spreadsheet if you have fewer than 500 customers. List each cohort and the monthly count of cancellations within it.
What's a Good Churn Rate
Don't chase an industry number. What matters is your own unit economics: compare what a customer is worth over their lifetime against what they cost to acquire, and work out how long they must stay for that to be positive.
Calculate Revenue Churn Too
One customer leaving is not the same as one high-value customer leaving. Calculate revenue churn: take the revenue lost from canceled subscriptions, divide by your starting month's total revenue, multiply by 100.
You might have 3% customer churn but 8% revenue churn if your large accounts are the ones leaving.
Track it on a schedule
Calculating churn once is not useful. Put the calculation on a fixed monthly date, keep the cohort breakdown beside it, and compare the trend rather than the single number.