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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Customer (logo) churn measures the percentage of customers lost, while revenue churn tracks the percentage of recurring revenue lost—both calculated monthly by dividing losses by starting period values, with revenue churn being the more critical metric for understanding business health since it accounts for account expansion and contraction.
If you're a SaaS operator trying to understand your retention picture, tracking just one churn metric won't cut it. A comprehensive churn calculation guide requires measuring both logo churn vs revenue churn, because these numbers often tell completely different stories about your business trajectory.
Understanding the Two Types of Churn
Before diving into formulas, let's establish clear definitions for the metrics that will drive your SaaS retention analysis.
What is Customer (Logo) Churn?
Customer churn—also called logo churn—measures the percentage of customers who cancel their subscriptions during a given period. Each customer counts equally regardless of what they pay. Lose one $50/month customer and one $5,000/month customer, and your logo churn treats them identically: two lost customers.
What is Revenue Churn (MRR/ARR Churn)?
Revenue churn measures the percentage of recurring revenue lost to cancellations and downgrades. This metric weights losses by their actual financial impact. That $5,000/month enterprise account cancellation hits your revenue churn 100x harder than losing the $50/month startup.
Why Revenue Churn Matters More for SaaS Growth
Here's the reality: you can have excellent customer churn numbers while your business deteriorates financially. If you're losing your highest-value accounts while retaining low-value customers, your logo churn looks stable while revenue hemorrhages. For sustainable SaaS growth, MRR churn is your north star metric.
How to Calculate Customer Churn Rate
Let's get practical with the customer churn rate formula and a step-by-step implementation.
The Basic Customer Churn Formula
Customer Churn Rate = (Customers Lost During Period ÷ Customers at Start of Period) × 100
Use customers at the start of the period as your denominator—not the end, not an average. This gives you a clean measurement of what percentage of your existing base churned.
Step-by-Step Calculation Example
Let's say you're calculating January's customer churn:
- Customers on January 1: 500
- Customers who canceled in January: 15
- New customers acquired in January: 40 (don't include these)
Customer Churn Rate = (15 ÷ 500) × 100 = 3.0%
Common Calculation Mistakes to Avoid
Mistake 1: Including new customers in the denominator. If someone signed up January 15 and canceled January 28, that's not churn from your existing base—handle new customer cancellations separately.
Mistake 2: Using end-of-period customer counts. This artificially deflates churn when you're growing and inflates it when contracting.
Mistake 3: Counting paused accounts as churned. Define your churn trigger clearly: is it cancellation request, end of paid period, or account deletion?
How to Calculate Revenue Churn Rate
Revenue churn tracking requires distinguishing between gross and net calculations—the difference fundamentally changes your growth outlook.
Gross Revenue Churn Formula
Gross Revenue Churn = (MRR Lost to Cancellations + MRR Lost to Downgrades) ÷ Starting MRR × 100
This measures pure revenue losses without accounting for expansion. It tells you how leaky your bucket is before any new water flows in.
Net Revenue Churn (Including Expansion)
Net Revenue Churn = (Lost MRR + Downgrade MRR - Expansion MRR) ÷ Starting MRR × 100
Net revenue churn factors in expansion revenue from existing customers (upgrades, add-ons, seat expansion). This is where the magic happens—and where negative net revenue churn becomes possible.
Working Example with Real SaaS Numbers
Let's run through a complete January calculation:
Starting MRR (January 1): $100,000
Revenue movements:
- Cancellations: 8 accounts totaling $4,500 MRR
- Downgrades: 5 accounts reducing MRR by $1,200
- Expansions: 12 accounts adding $7,500 MRR
Gross Revenue Churn:
($4,500 + $1,200) ÷ $100,000 × 100 = 5.7%
Net Revenue Churn:
($4,500 + $1,200 - $7,500) ÷ $100,000 × 100 = -1.8%
That negative number means your existing customer base generated more revenue in January than it lost—even before counting new sales.
Logo Churn vs Revenue Churn: Key Differences
Understanding when these metrics diverge reveals critical insights about your customer base and pricing strategy.
When Each Metric Tells a Different Story
Consider this scenario: You lose 10 customers (2% logo churn) but they were all enterprise accounts worth $3,000/month average. Meanwhile, you retained 490 customers averaging $150/month. Your customer churn looks acceptable, but you just lost $30,000 MRR against a $73,500 starting MRR base—that's 40.8% gross revenue churn in one month.
The inverse happens too: high logo churn among low-value accounts with strong enterprise retention produces alarming customer numbers but manageable revenue impact.
Account Expansion's Impact on Revenue Churn
Expansion revenue is what separates good SaaS businesses from great ones. When existing customers consistently grow their spend through:
- Seat/user additions
- Tier upgrades
- Feature add-ons
- Usage-based overage
…your net revenue churn can turn negative even with meaningful gross churn. This is the holy grail of SaaS retention analysis.
Which Metric Should You Prioritize?
Prioritize revenue churn when:
- You have significant ACV variation across customers
- Expansion revenue is a meaningful growth lever
- You're optimizing for profitability and capital efficiency
Track customer churn carefully when:
- You need early warning signals (revenue churn lags)
- You're evaluating product-market fit
- Churn clusters in specific segments require investigation
Most operators should report both but make decisions primarily on net revenue churn.
Building Your SaaS Retention Analysis Framework
Moving from ad-hoc calculations to systematic revenue churn tracking requires proper infrastructure.
Setting Up Churn Tracking Systems
Your billing system is the source of truth. Configure it to capture:
- Cancellation date (request vs. effective)
- Final MRR at time of churn
- Churn reason (ideally categorized)
- Customer tenure at churn
- Last plan/tier before churning
Export this monthly to your analytics layer, whether that's a spreadsheet for early-stage companies or a BI tool for scale.
Cohort Analysis for Deeper Insights
Monthly aggregate churn hides crucial patterns. Cohort analysis groups customers by signup month and tracks their churn curves over time. This reveals:
- Whether churn is improving for newer cohorts
- Time-based churn patterns (month 3 spike, month 12 renewal risk)
- Impact of onboarding or product changes on retention
Leading Indicators to Monitor
Churn is a lagging indicator—the customer already left. Build early warning systems around:
- Product engagement scores declining
- Support ticket sentiment shifts
- NPS/CSAT drops
- Login frequency changes
- Feature adoption stalls
Benchmarks and What Good Churn Looks Like
Context matters. Your target churn rates depend heavily on your market segment.
Industry Standards by SaaS Segment
SMB SaaS (< $500 ACV):
- Monthly customer churn: 3-5%
- Monthly gross revenue churn: 2-4%
Mid-Market SaaS ($5K-$50K ACV):
- Monthly customer churn: 1-2%
- Monthly gross revenue churn: 1-2%
Enterprise SaaS (> $50K ACV):
- Annual customer churn: 5-10%
- Annual gross revenue churn: 5-10%
When Negative Net Revenue Churn is Possible
Best-in-class SaaS companies achieve negative net revenue churn (also called net revenue retention above 100%). This typically requires:
- Usage-based or seat-based pricing that grows with customer success
- Clear upgrade paths between tiers
- Expansion selling motion (customer success or account management)
- Product stickiness that compounds over time
Companies like Snowflake, Twilio, and Datadog have demonstrated NRR above 130%—meaning existing customers alone would grow the business 30% annually even without new sales.
Taking Action: From Tracking to Reducing Churn
Measurement enables optimization. Here's how to connect your churn metrics to action.
Using Churn Data to Inform Pricing Strategy
Your churn data reveals pricing opportunities:
- High churn in lowest tier: Your entry price may attract poor-fit customers. Consider raising it or adding qualification.
- Churn concentrated at renewal: Annual contracts with automatic renewal and price increases need better value demonstration.
- Low expansion despite low churn: Your pricing structure may lack natural upgrade triggers. Evaluate usage-based components.
Segment your churn by plan, pricing tier, and contract type to identify where pricing changes could improve retention.
Connecting Churn Metrics to Customer Success
Arm your customer success team with churn intelligence:
- Risk scoring: Combine engagement data with churn predictors to prioritize outreach.
- Segment-specific playbooks: If month-3 churn is high, build a day-60 intervention. If enterprise churn spikes at renewal, start success reviews at month 9.
- Win-back campaigns: Track churned customer characteristics to identify re-engagement opportunities and address original churn reasons.
Accurate churn tracking isn't just a finance exercise—it's the foundation for every retention initiative, pricing decision, and growth forecast in your SaaS business. Start with clean measurement, then optimize relentlessly.
Get our SaaS Metrics Calculator Template—automatically track logo churn, revenue churn, and 12 other critical retention KPIs