How to calculate churn rate

Churn rate is the percentage of customers — or revenue — you lost over a period. The single most common mistake is treating it as one number. There are at least three churn rates a CS team should track, and they answer different questions: logo churn (how many accounts left), gross revenue churn (how much recurring revenue leaked), and net revenue churn (the leak after expansion is netted back in). This guide gives you the formulas, the period conventions, and the mistakes that produce wrong numbers.

Step 1: Pick the period and lock the denominator

Decide on monthly or annual before you touch a formula. The rule: measure on the cadence your contracts renew on. Annual contracts churn annually — measuring them monthly produces noisy, near-zero readings that spike at renewal. Month-to-month or usage-based products churn monthly. If you have a mix, segment and report each separately; do not blend an annual book and a monthly book into one rate.

Lock the denominator to the start of the period. Everything you measure (lost logos, lost revenue) is divided by what you had at the start, not the end, and not the average. New business landed during the period never enters the churn calculation — it is not yet eligible to churn.

Step 2: Calculate logo churn

Logo churn (also called customer churn or account churn) counts accounts, not dollars.

Logo churn rate = Customers lost during period / Customers at start of period

If you started the month with 400 customers and 12 cancelled, that’s 12 / 400 = 3.0% monthly logo churn. Logo churn weights a $2K account and a $200K account equally, so it overstates damage in a top-heavy book and understates it in a long-tail SMB book. Track it, but never report it alone.

Step 3: Calculate gross revenue churn (GRR’s inverse)

Gross revenue churn is the share of starting recurring revenue lost to cancellations and downgrades. It ignores expansion entirely.

Gross revenue churn = (Churned MRR + Downgrade MRR) / Starting MRR

Start the month with $500K MRR; lose $20K to cancellations and $5K to downgrades:

• Gross revenue churn = ($20K + $5K) / $500K = 5.0%
• Gross revenue retention (GRR) = 100% − 5.0% = 95.0%

Gross churn is capped — it cannot go below 0%. It is the honest measure of how leaky the bucket is, because expansion can never hide it.

Step 4: Calculate net revenue churn (NRR’s inverse)

Net revenue churn nets expansion (upsell, cross-sell, seat growth) back against the loss.

Net revenue churn = (Churned MRR + Downgrade MRR − Expansion MRR) / Starting MRR

Same $500K month, but add $40K in expansion from existing accounts:

• Net revenue churn = ($20K + $5K − $40K) / $500K = −3.0%
• Net revenue retention (NRR) = 100% − (−3.0%) = 103.0%

A negative net churn rate is the goal — it means existing customers grew the book faster than they shrank it. This is “negative churn” or “net negative churn.” Note that net churn can read healthy while gross churn is bleaking badly; that is exactly why you compute both. For the retention-side framing of these two metrics, see the companion entry below.

Step 5: Annualize correctly (do not multiply by 12)

To convert a monthly rate to annual, compound — do not multiply. Multiplying overstates annual churn because each month’s churn applies to a base already reduced by prior months.

Annual churn = 1 − (1 − monthly churn)^12

At 3% monthly gross churn: 1 − (0.97)^12 = 1 − 0.694 = 30.6% annual, not 36%. To go the other way (annual to monthly): monthly = 1 − (1 − annual)^(1/12).

Common mistakes

• Blending contract terms. Reporting one churn rate across annual and monthly books hides the truth in both. Guard: segment by contract cadence and report each rate separately.
• Wrong denominator. Using end-of-period or average customer count inflates or deflates the rate. Guard: always divide by the start-of-period base, and exclude same-period new business.
• Letting expansion mask cancellations. Reporting only net churn hides a leaking bucket behind a healthy headline. Guard: always publish gross churn alongside net churn — a board needs both.
• Multiplying to annualize. 3% monthly is 30.6% annual, not 36%. Guard: use the compounding formula above.
• Counting involuntary churn as voluntary. Failed-card and expired-card churn is a billing problem, not a CS problem. Guard: split voluntary (the customer chose to leave) from involuntary (payment failed) so dunning fixes are not mistaken for retention work.

Related

• NRR vs GRR — the retention-side framing of gross and net churn