What it means
Churn rate is the percentage of customers who cancel, downgrade, or stop buying in a given period. The formula is: (customers lost during the period) divided by (customers at the start of the period). A 5 percent monthly churn rate means 5 percent of your customer base leaves every month.
Two main flavours: customer churn (count of departing customers) and revenue churn (revenue lost to departing customers, sometimes called gross revenue churn). Net revenue churn also accounts for upsells from existing customers, which can be negative (good!) when expansion exceeds losses.
Why it matters
For subscription businesses, churn rate matters more than acquisition rate. A 5 percent monthly churn rate caps your sustainable customer base no matter how much you spend on acquisition. A 1 percent monthly churn rate compounds into a large business almost on its own.
Churn is also the input to LTV. The simplest LTV formula is average revenue per customer divided by churn rate. Cutting churn from 5 percent to 3 percent does not just save customers: it raises LTV by two-thirds, which raises the budget you can rationally spend on acquisition by the same factor.
Example
A SaaS brand has 1,000 customers paying SGD 200 a month. Monthly churn rate is 5 percent (50 customers leave each month). LTV equals 200 divided by 0.05 = SGD 4,000. They invest in onboarding improvements and customer success, cutting churn to 3 percent. New LTV: 200 divided by 0.03 = SGD 6,667. Same revenue per customer, 67 percent more lifetime value, justifying significantly higher CAC.