Churn rate vs. retention rate is one question looked at from two sides. Churn rate is the share of customers you lost during a period. Customer retention rate is the share of customers you kept. With a fixed customer base they add up to 100%, so 8% monthly churn means 92% retention.
In a real business they often don’t add up so neatly. New customers join mid-month, some of them leave before the month ends, and revenue moves differently from customer counts. Below are both formulas with worked numbers, the cases where they diverge, what “good” looks like, and the product problems that usually sit behind a bad churn number.
Churn Rate vs. Retention Rate at a Glance
Churn rate | Customer retention rate | |
|---|---|---|
What it measures | Customers lost in a period | Existing customers kept through a period |
Basic formula | Customers lost ÷ customers at start × 100 | (Customers at end − new customers) ÷ customers at start × 100 |
Good direction | Lower | Higher |
Typical period | Monthly | Monthly, quarterly or annual |
Most useful for | Spotting problems early | Judging long-term health and growth |
What Is Churn Rate?
Churn rate tells you how fast customers leave. In a subscription business that means cancelling. In ecommerce or a free app it usually means going inactive for a set window, such as 90 days without a purchase or 30 days without a login. Define that window once and stick to it, or month-to-month comparisons become meaningless.
Churn rate formula and example
Churn rate = customers lost during the period ÷ customers at the start of the period × 100
Say you start March with 1,000 paying customers and 60 of them cancel during the month. Your monthly churn rate is 60 ÷ 1,000 = 6%.
Only count customers from the starting base in the denominator. Adding March sign-ups to it makes churn look lower in a strong acquisition month, which is exactly when you’d want an honest number.
Customer churn vs. revenue churn
Customer churn (often called logo churn) counts accounts. Revenue churn counts money. They can tell very different stories. If you lose 10 of 100 customers but all 10 were on your cheapest plan, logo churn is 10% while revenue churn might be 3%. Lose a single enterprise account and the reverse happens: 1% logo churn, a painful revenue hit.
Revenue churn also captures downgrades. A customer who drops from a $500 plan to a $100 plan hasn’t churned as a logo, but $400 of monthly revenue has.
Voluntary vs. involuntary churn
Voluntary churn is a deliberate cancellation. Involuntary churn happens when a card expires or a payment fails and nobody fixes it. The second kind is easy to overlook and often the cheapest to recover, with automatic card retries, update reminders before expiry and a simple in-app screen to change payment details. Check it first before redesigning anything bigger.
What Is Customer Retention Rate?
Why Retention Isn't Always 100% Minus Churn
Here’s where most explanations stop too early. Use the quarter from above: 1,000 customers at the start, 200 new, 1,050 at the end. That means 150 customers left in total (1,000 + 200 − 1,050).
Churn by the standard formula is 150 ÷ 1,000 = 15%. Retention is 85%. They add up. Now suppose 20 of those 150 were new customers who signed up in week one and cancelled in week ten. Only 130 of your original customers actually left, so true churn of the starting base is 13%, while the retention formula still says 85%. The 2-point gap is the new customers who came and went inside the quarter.
The gap is not a math error. It’s information. A large difference means people are churning fast after signing up, which points to onboarding and first-week experience rather than long-term value. Track new-customer churn separately and you’ll see it clearly.
A second trap is using (customers at start − customers at end) ÷ customers at start as a churn formula. In the example above that gives −5%, because growth masked the losses. That’s net customer change, not churn.
Converting Monthly Churn to Annual Churn
Monthly churn doesn’t multiply by 12. Each month you lose a percentage of a smaller base, so the effect compounds:
Annual churn = 1 − (1 − monthly churn)¹²
At 2% monthly churn you lose about 21.5% of customers in a year, not 24%. At 5% monthly it’s about 46%, not 60%. At 10% monthly you lose roughly 72% of the base within a year. The same compounding explains why a churn rate that sounds small (say 5%) is a serious problem for a business that needs customers to stay for years to pay back acquisition costs.
What Is a Good Churn Rate and Retention Rate?
It depends on who your customers are and how they pay. Enterprise B2B products with annual contracts and onboarding teams sit at the low end of churn. Small-business SaaS churns more, because small businesses close, switch tools and cut costs quickly. Consumer subscriptions such as streaming, meal kits and fitness apps churn the most, since switching takes one tap.
For private B2B SaaS, SaaS Capital’s 2025 retention benchmarks report a median net revenue retention of 102% for companies with average contract values between $25,000 and $50,000, with the top quartile at 111% and the bottom quartile at 97%. Their data also shows retention rising with contract size.
A more useful benchmark than any industry median is your own trend. If monthly churn moved from 4% to 3% after an onboarding change, that’s a real signal. A competitor’s published number, measured with different definitions, is not.
Which Metric Should You Track?
Both, but for different jobs. Churn is the faster signal. It’s reported monthly, it reacts quickly to a bad release or a pricing change, and it’s what product and customer success teams should watch week to week. Retention, and NRR in particular, is the slower, strategic view that founders, finance and investors use to judge whether the business compounds.
There’s also a third number that most churn articles skip: user retention. Customer retention looks at billing. User retention looks at behavior, meaning how many people still log in and use the product. The two drift apart all the time. An annual customer can be paid up for eight more months while nobody on their team has opened the product in six weeks. Billing says retained. Usage says that renewal is already lost. Teams that only watch billing churn find out at renewal time, when it’s too late to fix. Our UX research work often starts right here, with interviews of customers whose usage dropped while they were still paying.
Common Mistakes When Calculating Churn and Retention
Most bad churn numbers come from definitions, not arithmetic. These are the ones we see most:
Counting free trial users who never paid as churned customers, which inflates churn and hides the real conversion problem.
Mixing periods, such as monthly churn in one report and quarterly retention in another, then comparing them directly.
Reporting only logo churn when a handful of large accounts drive most of the revenue.
Changing the inactivity window for non-subscription products, so last quarter’s 90-day definition becomes this quarter’s 60-day one.
Averaging churn across all customers when the problem sits in one segment, plan or acquisition channel.
How Product UX Drives Churn (and What to Fix First)
By
Fivecube Team
Frequently Asked Questions
Is churn rate the same as retention rate?
No. They’re opposite views of the same customer base: churn counts who left, retention counts who stayed. With no new customers they add up to 100%, but new customers who join and leave in the same period can make them diverge.
Is a 5% churn rate good?
It depends on the period and the business. A 5% monthly churn rate compounds to roughly 46% annually, which is high for B2B software but common for consumer subscriptions. A 5% annual churn rate is strong for most businesses.
What does a 20% churn rate mean?
It means you lost 20% of the customers you started the period with. At 20% annually you keep 80% of customers each year. At 20% monthly you would lose over 90% of your base within a year.
What is a good customer retention rate?
There’s no universal number. Enterprise B2B products often keep 90% or more of customers per year, while consumer apps and subscriptions keep far fewer. Your own month-over-month trend is a better guide than an industry average.
What does 80% retention rate mean?
It means 80% of the customers you had at the start of the period were still customers at the end, and 20% left. New customers acquired during the period aren’t counted.
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