Churn rate vs. retention rate: Key differences and how to measure them

Churn rate vs. retention rate describes the same customer base from opposite angles. 

In this guide, you’ll get the formulas, a quick comparison table, monthly churn examples, and practical tips for enterprise and SMB SaaS.

What is churn rate in SaaS terms?

Churn rate is the percentage of customers who cancel or do not renew in a defined period. A high churn rate can be a big problem for SaaS companies, as it directly impacts their recurring revenue.  

Think of it like this: Say you have 100 customers at the start of the month. By the end of the month, 5 of them have canceled their subscriptions. In this case, your monthly churn rate would be 5%. Do keep in mind this is an oversimplification, and we’ll discuss the formula later. 

Here’s a quick look at the formula:

Churn rate = (Customers lost during period ÷ Customers at start of period) × 100

Example: Start the month with 1,000 customers. If 30 cancel, monthly churn = (30 ÷ 1,000) × 100 = 3%.

When to use it: Use churn when you need an early warning signal, to separate voluntary vs. involuntary churn, or to evaluate acquisition quality by cohort.

What is the retention rate?

Retention rate is the percentage of customers who remain active over a period. It's a direct reflection of how well you're keeping your customers happy and engaged. A high retention rate is a powerful indicator of customer satisfaction and a healthy business trajectory.

Let’s break this down using the retention rate formula:

Retention rate = (Customers at end − New customers in period) ÷ Customers at start × 100

Example: Start with 500 customers, add 100, end with 450. Retention = ((450 − 100) ÷ 500) × 100 = 70%.

Note: We’ll touch upon this formula in more detail in a later section.

When to use it: Use retention to check onboarding effectiveness, product-market fit by segment, and long-term relationship health. 

In short: Churn shows how many customers leave in a period, and retention shows how many stay. 

Churn rate vs. Retention rate vs. Revenue churn

The interplay of customer retention vs. churn is a constant balancing act for SaaS companies. Here’s a chart explaining the differences between churn rate vs. retention rate vs. revenue churn.

Important: Retention equals 100% − churn only when you measure the same cohort over the same period using logo-based counts. If you mix definitions or periods, the identity breaks.

Note: For a deeper dive into retention metrics that interact with churn, read our explainer on NRR vs. GRR.

How to calculate your SaaS company's retention rate

Calculating your SaaS retention rate is a key step in understanding your customer relationships and business health. Here’s a quick 5-step how-to:

1. Pick a period (month, quarter, year).
   
   
2. Count customers at the start.
   
   
3. Count customers at the end.
   
   
4. Subtract new customers acquired in the period from the end count.
   
   
5. Divide by the start count and multiply by 100.

Tip: Keep acquisition and retention separate to avoid inflated retention. Use cohorts by signup month for cleaner reads.

Here's the formula to calculate your customer retention rate we shared earlier:

[(Number of customers at the end of a period - Number of new customers acquired during that period) / Number of customers at the beginning of the period] x 100

Let's break down the elements:

• Number of customers at the end of a period: This is the total number of customers you have at the end of the time period you're measuring (e.g., month, quarter, year).  
• Number of new customers acquired during that period: This refers to the number of new customers you gained within that specific time period.
• Number of customers at the beginning of the period: This is your starting point – the total number of customers you had at the very beginning of the measurement period.

Please note: This formula isolates retention by excluding new customer acquisitions to provide a clearer view of how well you’re retaining your original customer base. 

Including new customers in the calculation could inflate retention figures, making it harder to identify if existing customers are leaving. By isolating retention, this formula focuses purely on customer loyalty and satisfaction.

Example

Here's an example to illustrate how it works in action:

Let's say you're analyzing your monthly retention rate.

• At the beginning of the month, you had 800 customers.
• During the month, you acquired 100 new customers.
• At the end of the month, you have a total of 850 customers.

Plugging these numbers into the formula:

[(850 - 100) / 800] x 100 = 93.75%

Your monthly retention rate is 93.75%. This data shows you retained almost 94% of your existing customers that month.

Note: Learn how retention connects to expansion with our guide to net dollar retention.

What is monthly churn?

Monthly churn is the percentage of starting customers who cancel within a calendar month or billing month. It matters because monthly churn surfaces onboarding issues, pricing friction, or failed-payment patterns faster than annual views.

How to read it: Track monthly churn by cohort, then roll up to quarterly or annual to understand seasonality.

Enterprise SaaS churn rate vs. SMB: Enterprise contracts often renew annually and include longer commitments, so enterprise SaaS churn rate tends to be lower than SMB churn, though lost logos can have a bigger revenue impact.

Strategies to improve customer retention

Keeping your customers happy and engaged is key to a thriving SaaS business. Here are some key strategies to improve your retention rate and keep churn low:

• Speed up time-to-value with crisp onboarding and in-app checklists.
• Personalize education by role, plan, and use case.
• Proactive outreach to at-risk cohorts before renewal windows.
• Fix involuntary churn with dunning, card-updater, and smart retry logic.
• Close the loop on feedback and ship improvements to top friction points.
• Annual or multi-year terms where appropriate to stabilize renewals.

Note: Building a retention muscle is a customer success job. Read our SaaS customer success guide.

How to calculate your churn rate 

Here are some simple steps you can follow to calculate your customer churn rate: 

1. Pick a period.
2. Count customers at the start.
3. Count how many customers canceled or did not renew in the period.
4. Divide the lost customers by the start count and multiply by 100.

Here's the formula to calculate your customer churn rate:

(Number of customers who left during a specific period / Total number of customers at the beginning of that period) x 100

Let's break down the elements:

• Number of customers who left during a specific period: This also refers to those who chose not to renew within the time frame you're analyzing (e.g., month, quarter, year).  
• Total number of customers at the beginning of that period: This is your starting point. It’s the total number of customers you had at the very beginning of the measurement period.

Example: Start with 1,000 customers. If 30 cancel, churn = 3%.

Note: Want more examples and edge cases? See our churn rate formula guide.

Warning signs of potential churn

You can't always predict exactly when a customer might churn. However, there are often telltale signs that indicate a customer may be on their way out. Recognizing these warning signs early is critical. Here are some key red flags to watch out for:

• Falling feature usage on core actions or value-creating workflows.
• Payment risk signals like failed charges or expiring cards.
• Support signals such as rising ticket sentiment or slow first response.
• Downgrades that precede cancellation.
• Low engagement with onboarding or product education.

What are the ideal churn and retention rates? 

While every SaaS business strives for zero churn and 100% retention, it's important to have realistic benchmarks in mind. Understanding industry standards can help you set goals and track your progress effectively.

According to Cobloom’s meta-analysis of 6 studies, the ideal churn rate for SaaS companies is 5% to 7% annually. This translates to a monthly churn rate of roughly 0.4%. Conversely, the ideal retention rate falls within the range of 93% to 95% annually, or 99.6% monthly.

Of course, these are just benchmarks. Your specific goals will depend on various factors, including your industry, company size, and growth stage.

Here are some key considerations when evaluating your churn rate vs. retention rate:

• Industry averages: Research industry-specific benchmarks. This way, you’ll understand how your performance compares to competitors.
• Company stage: Early-stage companies often have higher churn rates as they find their market fit. Established companies typically have lower churn and higher retention.
• Customer lifetime value (LTV): If your LTV is high, you may be able to tolerate a slightly higher churn rate. However, if your LTV is low, minimizing churn becomes even more crucial.

FAQs

1. What is the average SaaS churn rate?

There is no single average that fits every SaaS. Baseline your own average by segment, price point, and term, then track improvement over time.

2. What is a high churn rate?

A high churn rate is any rate that trends upward against your history or peers. If monthly churn climbs or renewal cohorts slip, investigate drivers.

3. What is a low churn rate?

A low churn rate means stable cohorts and fewer cancellations. Confirm that low churn accompanies healthy product usage, not just long contracts.

Orb can help you monitor revenue for better billing

We've explored the key differences between churn rate vs. retention rate. But what about the practical side of keeping those rates in check? The answer is to use a billing and pricing platform. 

Orb is a done-for-you billing platform designed to give you the tools and insights to keep churn low and retention high. Here's how Orb can help:

• Ingest raw usage events with high accuracy so you can define your own billable metrics. Use Orb SQL Editor or a visual editor to do so without engineering.
• Reduce billing errors with fully auditable invoices computed from raw data.
• Evolve pricing faster. With Orb, you can update pricing logic without rewriting code.
• Decouple usage data from pricing logic with Orb RevGraph, so invoices remain accurate and up to date even as you change pricing.
• Forecast pricing outcomes with Orb Simulations using your historical data. Finance and product teams make more informed decisions.
• Sync data across systems with direct integrations, so usage and revenue data stay aligned.

Orb is the billing platform that equips you to design and operate pricing systems that evolve with your product. If you want billing that your customers can understand and trust, we can help. Check our flexible pricing options if you’re ready to elevate your billing and pricing operations.