Quick definition: The percentage of customers who cancel their subscription in a given period. Below 3% monthly is healthy; above 5% raises alarms.
Calculation formula
Churn rate = (Customers who left during the period / Total customers at the start of the period) × 100
Example: At the start of the month, you had 1000 customers; 30 left. Monthly churn: 3%.
Healthy levels
Monthly churn: 3–5% is normal for SMB SaaS; above 5% is a serious problem. For enterprise, 1–2%.
Annual churn: Monthly 5% → annual ~46%. You lose roughly half your customer base every year. Since acquisition costs are so high, this isn't sustainable.
How to reduce it
(1) Onboarding — The first 30 days are critical. Get the customer to first value quickly.
(2) Engagement metrics — Identify inactive users early.
(3) Win-back — Proactive offers to customers showing leaving signals.
(4) Product–market fit — Don't attract the wrong customer in the first place.