Churn Rate: What It Really Costs You (And How to Fix It)

Your churn rate isn't just a metric. It's the single biggest leak in your subscription business — and it's probably costing you 2-5x more than you realize.

I've worked with subscription businesses for over a decade, including growing Codecademy from $10M to $50M in annual recurring revenue. And here's what I've learned: most operators obsess over acquiring new subscribers while silently bleeding revenue from the ones they already have.

A 5% monthly churn rate sounds manageable. It's not. It means you lose nearly half your subscriber base every year. You're filling a bucket with a hole in the bottom, and pouring more water in is the most expensive possible fix.

This guide covers how to calculate your churn rate, what "good" looks like, and — most importantly — the specific fixes that actually move the number. Not generic advice. The stuff that works.

---

What Is Churn Rate?

Churn rate is the percentage of subscribers who cancel or stop paying during a given period.

That's it. Simple concept. But the way you calculate it — and which type of churn you're measuring — matters a lot.

Most articles define churn and move on. That's the easy part. The hard part is understanding what your churn number is actually telling you, because there are several versions of "churn rate" and they tell you very different things.

---

How to Calculate Churn Rate

Customer Churn Rate Formula

The basic formula:

Customer Churn Rate = (Customers Lost During Period ÷ Customers at Start of Period) × 100

If you start the month with 1,000 subscribers and 50 cancel, your monthly customer churn rate is 5%.

Simple. But this number lies to you in an important way: it treats all customers equally. Losing a $9/month subscriber and a $299/month subscriber count the same. That's a problem.

Revenue Churn Rate Formula

This is the one that actually matters:

Gross Revenue Churn Rate = (MRR Lost to Cancellations and Downgrades ÷ MRR at Start of Period) × 100

If you start the month with $100,000 in MRR and lose $4,000 to cancellations and downgrades, your gross revenue churn rate is 4%.

But there's an even better version:

Net Revenue Churn Rate = ((MRR Lost − MRR Gained from Expansions) ÷ MRR at Start of Period) × 100

Net revenue churn accounts for upsells, cross-sells, and plan upgrades from existing customers. If you lost $4,000 but gained $5,000 from expansions, your net revenue churn is actually -1%. That's negative churn — your existing customers are growing in value even after cancellations.

This is what the best subscription businesses optimize for. More on that later.

Which One Should You Track?

Both. But make decisions based on revenue churn, not customer churn.

I've seen businesses with a 3% customer churn rate panic because the number sounds high — while their revenue churn was under 1% because the customers leaving were on the cheapest plan. I've also seen the opposite: low customer churn masking the fact that high-value subscribers were quietly walking out the door.

Customer churn tells you how many people are leaving. Revenue churn tells you how much it costs.

---

Churn Rate Benchmarks: What's Actually Good?

Benchmarks are tricky because they vary wildly by business type, price point, and customer segment. But here's what the data shows:

Monthly Churn Rate Benchmarks

Business Type	Monthly Churn	What This Means
B2B SaaS (Enterprise)	1-2%	Long contracts, high switching costs
B2B SaaS (Mid-Market)	1.5-3%	Moderate contracts, some stickiness
B2B SaaS (SMB)	3-5%	Shorter commitments, price-sensitive
B2C Subscriptions	4-6%	Lower switching costs, discretionary spend
Consumer Digital Media	6-8%+	High churn is the norm, volume game

By Price Point

This is the one most operators miss. Churn correlates heavily with ARPU:

ARPU	Typical Monthly Churn
Under $25/mo	~6%
$25-$100/mo	~3-4%
$100-$500/mo	~2-3%
Over $1,000/mo	~1.5-2%

Higher price points tend to mean more intentional purchase decisions, longer onboarding, and higher switching costs. If you're selling a $9/month product and comparing your churn to enterprise SaaS benchmarks, you're measuring against the wrong yardstick.

The Number That Matters Most

Forget monthly churn for a second. Here's the question: what's your net revenue retention (NRR)?

NRR measures whether your existing subscriber base is growing or shrinking in value. It includes churn, downgrades, and expansion revenue.

• NRR above 100%: You'd grow even if you never added another customer. Expansion revenue exceeds losses.
• NRR of 90-100%: Stable, but not compounding. You need new customers to grow.
• NRR below 90%: Your existing base is shrinking. You're on a treadmill.

The best subscription businesses run 110-130% NRR. They've turned churn from a loss into a growth engine by pairing retention with expansion.

---

The Compounding Cost of Churn

Here's where churn becomes a monetization problem, not just a retention problem.

A 5% monthly churn rate doesn't mean you lose 60% of subscribers per year (5% × 12). It compounds. You actually lose about 46% annually — because each month's losses are calculated on a shrinking base.

Let me show you the math with a real example.

Scenario: 1,000 subscribers at $50/month, 5% monthly churn, no new acquisitions

Month	Subscribers	MRR
0	1,000	$50,000
3	857	$42,850
6	735	$36,750
9	630	$31,500
12	540	$27,000

You lost $276,000 in annual revenue from those original 1,000 subscribers. Not $30,000 (one month's churn × 12). $276,000.

Now compare that to reducing churn from 5% to 3%:

Month	Subscribers	MRR
0	1,000	$50,000
3	913	$45,650
6	833	$41,650
9	760	$38,000
12	694	$34,700

That 2-percentage-point reduction saves you $92,400 in annual revenue from the same starting base. Without acquiring a single new subscriber.

This is why I keep saying: most subscription businesses don't have a traffic problem. They have a monetization problem. The math on retention always beats the math on acquisition.

Another way to think about it: reducing churn from 5% to 3% increases average customer lifetime from 20 months to 33 months. That's a 65% increase in lifetime value — from every subscriber you already have.

---

The Two Types of Churn (And Why This Distinction Changes Everything)

Most churn rate articles list a dozen generic tips and call it a day. That's useless, because there are two fundamentally different reasons subscribers leave, and the fixes for each are completely different.

Involuntary Churn: The Revenue You're Throwing Away

Involuntary churn happens when subscribers lose access because their payment failed — not because they chose to leave. Their credit card expired. Their bank flagged a charge. They hit a temporary spending limit.

These are subscribers who want to keep paying you.

How big is this problem? Involuntary churn accounts for 20-40% of all subscription churn. Some studies put it even higher — up to 53% of total churn. Nearly 30% of payment cards in the US are reissued every year due to expiration, loss, or upgrades.

Think about that. Up to half of your churned subscribers didn't want to leave. You're literally throwing away customers because of a billing issue.

Voluntary Churn: The Revenue You Need to Earn

Voluntary churn is when subscribers actively choose to cancel. They decided your product isn't worth the price. They found an alternative. They don't need it anymore. Their circumstances changed.

This is harder to fix because it requires understanding why people leave — and that answer is different for every business.

Why the Distinction Matters

The fixes are completely different:

	Involuntary Churn	Voluntary Churn
Cause	Payment failures	Active cancellation
Fix	Payment infrastructure + dunning	Product value + retention flows
Effort	Low (mostly setup and automation)	High (ongoing product and CX work)
ROI timeline	Immediate	Weeks to months
Recovery rate	50-70% of failed payments	10-15% of cancel intents

If you don't know what percentage of your churn is involuntary vs. voluntary, you're flying blind. Find out today. Because if half your churn is involuntary, you're about to recover a lot of revenue with relatively little effort.

---

How to Fix Involuntary Churn

This is where I always tell people to start. It's the highest-ROI fix in subscription monetization: the effort is low, the results are immediate, and it works while you sleep.

1. Turn On Smart Retries

If you're on Stripe, there's a setting called Smart Retries. It uses machine learning — trained on billions of transactions across Stripe's network — to figure out the optimal time to retry a failed payment.

Most businesses never turn it on. They're retrying payments on day 1, day 3, and day 7 because that's the default fixed schedule. Stripe's ML can do significantly better because it factors in things you'd never know: when the customer's card is most likely to have sufficient funds, optimal processing times in their region, patterns from similar payment profiles.

Businesses using Smart Retries recover an average of 57% of failed recurring payments. If you're still on a fixed retry schedule, you're leaving money on the table.

How to enable it: Stripe Dashboard → Settings → Billing → Revenue Recovery → Smart Retries. Takes about 30 seconds.

2. Build a Dunning Email Sequence

When a payment fails, most businesses either send a generic "update your payment method" email or — worse — nothing at all.

The fix: a dunning sequence. 3-4 emails over 10-14 days.

Email 1 (Day 0 — payment fails): Subject: "There's an issue with your payment" Tone: Helpful, not alarming. "We noticed your payment didn't go through. This usually happens when a card expires or your bank flags an unfamiliar charge." Include: Direct link to update payment info. One click, no login wall if possible.

Email 2 (Day 3): Subject: "Quick reminder: your subscription payment needs updating" Tone: Gentle reminder. Mention what they'll lose access to.

Email 3 (Day 7): Subject: "Your [Product] access will be paused soon" Tone: Urgency without guilt. Specific date access will be lost.

Email 4 (Day 12): Subject: "Last chance to keep your [Product] subscription" Tone: Final notice. Clear deadline.

Key principles: Customize the error message based on the failure reason. "Your card expired" gets a different email than "payment declined." Always include a direct link to the payment update page. No drama, no guilt — just clarity and easy resolution.

3. Send Pre-Expiration Reminders

Don't wait for a payment to fail. Proactively email subscribers 30, 15, and 7 days before their credit card expires. Include a direct link to update their payment method.

This is pure prevention. Costs almost nothing to implement. Recovers revenue before it's ever at risk.

4. Set Up Platform-Specific Recovery

Stripe: Enable Smart Retries + set your retry schedule to work alongside ML-driven timing.

App Store subscriptions: Set the billing grace period and retry window to 16 days across billing periods. Apple will retry the charge during this window before cancelling the subscription.

Google Play: Enable account hold and grace period features. They serve a similar function.

5. Offer Alternative Payment Methods

If your audience skews mobile, offer Apple Pay and Google Pay at checkout. These payment methods use device-stored, automatically-updated tokens — which means fewer expired card failures.

The combined impact of these five fixes? You should be able to get involuntary churn below 1% of subscribers per month. If you're currently at 2-3% involuntary churn, you're about to recover 50-70% of those lost subscribers.

---

How to Fix Voluntary Churn

Voluntary churn is harder because there's no single fix. Subscribers leave for different reasons, and you need to understand yours.

But there are patterns I see across almost every subscription business I work with.

1. Add a Cancellation Flow (Not a Cancel Button)

Most subscription businesses have a "Cancel Subscription" button that immediately terminates the account. That's leaving money on the table.

A cancellation flow intercepts the cancel intent and offers alternatives:

• Pause option: "Take a break for 1-3 months instead of cancelling." This alone saves 10-15% of cancel intents, because many subscribers are leaving temporarily (vacation, budget crunch, busy period) and would come back — but won't bother re-subscribing later.
• Downgrade option: "Switch to a lower tier instead of leaving entirely." Keeps them as a paying customer at a lower rate — and you can win them back to the higher tier later.
• Discount offer: "Stay for 50% off your next 3 months." Use sparingly and only for high-value subscribers, but it works.

2. Survey Every Cancelling Subscriber

Before the cancellation completes, ask one question: "What's the main reason you're cancelling?"

Give them 4-5 options plus an open text field. Not a 20-question survey — one question.

This data is gold. After a few hundred responses, you'll see clear patterns. Maybe 40% say "too expensive." Maybe 30% say "not using it enough." Maybe 20% say "switched to [competitor]."

Now you know where to focus. "Too expensive" might mean your packaging is wrong, not your price. "Not using it enough" might mean your onboarding doesn't demonstrate value fast enough.

You can't fix what you don't understand. This survey gives you the diagnosis.

3. Know Your #1 Reason — and Fix It

Once you have the data, focus on the single biggest reason. Not all five. The #1 reason.

At Codecademy, we found that a significant portion of churn happened because users didn't experience core product value quickly enough. They'd sign up, start a lesson, get confused or distracted, and never come back. The subscription lapsed.

The fix wasn't a cancellation flow or a discount. It was onboarding — making sure every new subscriber hit a meaningful "aha moment" in their first session. That single change had a bigger impact on churn than any retention tactic we tried.

Your #1 reason will be different. But the principle is the same: find the biggest lever and push it hard.

4. Track Churn by Cohort

Don't just look at your overall churn rate. Break it down by when subscribers signed up.

If your January cohort churns at 3% but your March cohort churns at 7%, something changed — a new acquisition channel that attracts lower-quality subscribers, a product change that hurt onboarding, a pricing experiment that backfired.

Cohort analysis turns a single number into a diagnostic tool.

5. Turn Off Monthly Payment Receipt Emails

This one surprises people, but it's real: monthly payment receipt emails remind subscribers that they're paying. For subscribers who aren't actively using the product, that receipt is a trigger to cancel.

I'm not saying hide the charge. Subscribers can always find their billing history. But proactively sending "You just paid $49" to someone who hasn't logged in for two months is essentially prompting them to reevaluate whether they need you.

Check your billing platform settings. Most send receipts by default. Turn them off.

---

Churn Rate Calculator

Here's a quick reference for calculating the key churn metrics:

Customer Churn Rate

(Subscribers lost during period ÷ Subscribers at start of period) × 100

Example: (50 lost ÷ 1,000 start) × 100 = 5% monthly churn

Revenue Churn Rate (Gross)

(MRR lost to cancellations + downgrades) ÷ MRR at start of period × 100

Example: ($4,000 lost ÷ $100,000 MRR) × 100 = 4% gross revenue churn

Revenue Churn Rate (Net)

(MRR lost − MRR gained from expansions) ÷ MRR at start of period × 100

Example: ($4,000 lost − $5,000 expansion) ÷ $100,000 = -1% net revenue churn

Annual Churn from Monthly Churn

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

Example: 1 − (1 − 0.05)^12 = 1 − 0.54 = 46% annual churn

Average Customer Lifetime (in months)

1 ÷ monthly churn rate

Example: 1 ÷ 0.05 = 20 months
Example: 1 ÷ 0.03 = 33.3 months

---

FAQ

What is a good churn rate for SaaS?

For B2B SaaS, aim for under 2% monthly (or under 5-7% annually). For B2C or consumer subscriptions, under 5% monthly is solid. But "good" depends on your price point, customer segment, and business model. A $9/month consumer app will always churn higher than a $500/month enterprise tool. Compare against your segment, not the internet's generic benchmarks.

What's the difference between gross and net churn?

Gross churn measures total revenue lost to cancellations and downgrades. Net churn subtracts expansion revenue (upsells, cross-sells, upgrades) from that loss. A business with 5% gross churn but strong upselling could have 1% net churn — or even negative net churn, meaning existing customers grow in value faster than others leave.

How much of my churn is involuntary?

If you don't know, check today. Log into your billing platform and look at cancellation reasons. Failed payments, expired cards, and declined charges are all involuntary. Industry-wide, it's 20-40% of total churn — sometimes higher. This is the easiest churn to fix because the subscribers want to keep paying you.

Can you have negative churn?

Yes, and it's the goal. Negative net revenue churn means your existing subscriber base is growing in value — expansion revenue exceeds losses from cancellations and downgrades. The best subscription businesses run 110-130% net revenue retention, which means negative churn is built into the model.

How does churn compound over time?

A 5% monthly churn rate doesn't mean 60% annual churn (5% × 12). It compounds to roughly 46% annual churn. Each month's losses are calculated against a shrinking base, and the lost revenue from early-month churners accumulates across remaining months. A subscriber who cancels in January costs you 12 months of potential revenue; one who cancels in June costs you 7 months.

What's the fastest way to reduce churn?

Fix involuntary churn first. Enable Smart Retries on Stripe (or equivalent ML-driven recovery on your billing platform), set up a 3-4 email dunning sequence, and send pre-expiration card reminders. This addresses 20-40% of your total churn with a few hours of setup. For voluntary churn, start by adding a cancellation flow with a pause option and a one-question survey — this recovers 10-15% of cancel intents and gives you data on why people leave.

---

What to Do Next

If you've read this far, you probably have a sense of where your churn problems live.

Here's my recommendation: start with involuntary churn. It's the fastest fix, the highest ROI, and it works automatically once set up. If you haven't enabled Smart Retries, built a dunning sequence, or set up card expiration reminders — do that this week.

Then dig into voluntary churn. Add a cancellation flow with a pause option. Start surveying cancelling subscribers. Find your #1 reason and fix it.

If you want a more complete picture of where your subscription business is leaking revenue — not just churn, but pricing, packaging, conversion, and expansion too — I built a free self-assessment that covers all of it.

Take the Subscription Revenue Leak Audit →

52 checklist items across 8 revenue leak categories. Takes 10 minutes. Shows you exactly where you're leaving money on the table.