How To Calculate Annual Churn Rate: Five Formulas, Benchmarks
To calculate the annual churn rate, there are five different formulas. They're used in slightly different contexts and can yield different results.
Looking at churn on an annual timescale gives you a better pulse on your business.
Even a 5% monthly churn means you lose 46% of your customers annually [source].
How To Calculate Annual Churn Rate?
To calculate the annual churn rate, there are four different formulas.
- All formulas we've mentioned are valid ways to calculate annual churn rate, but they're used in slightly different contexts and can yield different results.
- The choice often depends on the company's growth stage, business model, and specific analytics needs.
- In practice, many companies at least calculate two of them to get a comprehensive view of their churn. One for annual customer churn (#1 or #2) and another for revenue customer churn (#3 or #4).
Let's consider a hypothetical SaaS with the following scenario:
| Users at Start of Year | 1000 |
| Users at End of Year | 1100 |
| Total Users Churned During Year | 200 |
| New Users Acquired During Year | 300 |
| Revenue at Start of Year | $1,000,000 |
| Revenue at End of Year | $1,150,000 |
| Revenue Lost from Churned Customers | $180,000 |
| MRR at Start of Year | $100,000 |
| MRR at End of Year | $115,000 |
| MRR Lost to Churn | $15,000 |
1. Using Average Number Of Users
Annual Churn Rate = (Number of Churned Users / Average Number of Users) * 100
Using the numbers from our example scenario:
- Number of Churned Users = 200
- Average Number of Users = (1000+1100)/2 = 1050
- Annual Churn Rate = (200 / 1050) * 100 = 19.05%
This means the company lost 19.05% of its customers over the year.
2. Using Number Of Users At Start Of Year
Annual Churn Rate = 1 - (Number of Users at the End of the Year/Number of Users at the Start of the Year) *100
Using the numbers from our example scenario:
- Number of Users at the End of the Year = 1100
- Number of Users at the Start of the Year = 1000
- Annual Churn Rate = (1 - (1100 / 1000)) * 100 = -10%
The negative value indicates growth rather than churn. The business was able to acquire more users than it lost and churn rate is -10% over the year.
3. Using Total Revenue at the Start of the Year
Annual Revenue Churn Rate = Revenue Lost from Churned Customers/Total Revenue at the Start of the Year*100
Using the numbers from our example scenario:
- Total Revenue at Start of Year: $180,000
- Revenue Lost from Churned Customers: $1,000,000
- Annual Revenue Churn Rate = ($180,000 / $1,000,000) * 100 = 18%
The third formula reveals the exact revenue loss from churned customers.
4. Using MRR Inputs
Annual Revenue Churn Rate = (MRR Lost to Churn / MRR at the Start of the Year) * 100
Using the numbers from our example scenario:
- MRR at Start of Year: $15,000
- MRR Lost to Churn: $100,000
- Annual Revenue Churn Rate = ($15,000 / $100,000) * 100 = 15%
This means the company lost 15% of its monthly recurring revenue due to churn over the year. The fourth formula shows a lower MRR churn, suggesting that churned customers may have been lower-value subscribers.
5. Using Monthly Churn
If you already have monthly churn with you, read how to convert monthly to annual churn.
Khushi Lunkad
Reduce High Annual Churn With Churnkey
Churnkey offers support for both voluntary and involuntary churn prevention as well as deep analytics so you can understand the root causes of your customer churn.
On average, our customers retain 20-40% of the revenue that they would have otherwise lost to churn.
Additional Reading
- How to improve renewal rate?
- Hard and soft declines
- Customer exit survey
- Retention rate and revenue rate calculator
- Gross churn vs net churn
- Customer retention curves
FAQs
Annual churn rate formula
The annual churn rate formula can be calculated in four ways. One way is 1 - (Number of Users at the End of the Year/Number of Users at the Start of the Year) *100
How to calculate annualized churn rate?
To calculate annualized churn rate, you need to calculate customer churn and revenue churn. Annual Customer Churn = (Number of Churned Users / Average Number of Users) * 100. Annual Revenue Churn Rate = Revenue Lost from Churned Customers/Total Revenue at the Start of the Year * 100.
What is a good annual churn rate?
These metrics were originally sourced by Lenny's monthly churn post. We've converted them to annual rates.
- For B2C SaaS: Between 31% and 46% annual churn is GOOD, and less than 22% is GREAT. These include subscription products sold to consumers; e.g. Duolingo, Spotify, Grammarly.
- For B2B SMB + Mid-Market: Between 26% and 46% is GOOD, and less than 17% is GREAT. These include products sold to companies with less than 1,000 employees and charge less than $1K per month for the average customer. Examples: Gusto, Intercom, Airtable, Asana
- For B2B Enterprise: Between 11% and 22% is GOOD, and less than 6% is GREAT. These products are sold to companies with more than 1,000 employees, generally charging more than $5K per month for the average customer; e.g. Salesforce, Snowflake, Workday, ADP
What is 5% annual churn?
A 5% annual churn rate means that 5% of your total user base (or customers) at the start of the year churns (or cancels) by the end of the year. If you start with 1,000 users, a 5% annual churn means you would lose 50 users over the year. This is a very healthy rate.
