Churn Rate Calculator

Why Small Monthly Churn Compounds Devastatingly

Here is the math that surprises most business owners: a 5% monthly churn rate does not mean you lose 60% of your customers in a year. It means you lose 46%. A 10% monthly churn rate does not mean you lose all your customers in 10 months. It means you lose 72% in a year. The compounding works against you.

The formula is straightforward. If you retain 95% of customers each month (5% churn), after 12 months you have 0.95 to the 12th power, which equals 0.54. You have kept 54% and lost 46%. At 3% monthly churn, you keep 69% annually. At 7%, you keep only 42%. These small-sounding monthly numbers produce annual losses that can devastate a business.

The customer half-life makes this even more tangible. At 5% monthly churn, your customer half-life is about 13.5 months. That means in just over a year, half of your current customers will be gone. You would need to acquire that same number of new customers just to stay at the same size. Growth requires acquiring even more than that.

SaaS Churn Benchmarks

Churn rates vary dramatically by business type, customer segment, and pricing. Here are benchmarks from industry research that help put your numbers in context:

• SMB SaaS (small business customers): 3–5% monthly churn is typical. Small businesses fail, change tools frequently, and have lower switching costs. Monthly churn below 3% is considered strong for this segment.
• Mid-market SaaS: 1–2% monthly churn is the benchmark. These customers have more invested in the tool and higher switching costs. Annual churn of 10–15% is considered acceptable.
• Enterprise SaaS: Less than 1% monthly churn is the expectation. Multi-year contracts, deep integrations, and high switching costs keep enterprise customers sticky. Annual churn below 5% is considered best-in-class.
• Consumer subscriptions: 5–10% monthly churn is common. Streaming services, meal kits, and subscription boxes all fight high churn because the switching cost for consumers is essentially zero.
• Home services (recurring): Landscaping, cleaning, and pest control companies serving residential customers typically see 3–7% monthly churn. Commercial contracts tend to churn at 1–3% monthly due to longer agreements.

The Revenue Impact of Improving Retention by 5%

Research published by Harvard Business Review found that increasing customer retention rates by 5% increases profits by 25% to 95%. The range is wide because the impact depends on industry, margins, and customer acquisition costs, but the direction is always the same: even modest retention improvements produce outsized profit gains.

Why is the effect so large? Three compounding factors:

1. You stop paying to replace lost customers. Every customer who stays is one you do not need to re-acquire. If your CAC is $500 and you retain 50 more customers per year, that is $25,000 you do not spend on acquisition.
2. Longer-tenured customers spend more. Customers who stick around tend to expand their spending over time. They buy more services, upgrade to premium tiers, and refer other customers. The value of a 3-year customer is typically much more than 3 times the value of a 1-year customer.
3. Servicing costs decrease over time. New customers require onboarding, training, and hand-holding. Established customers know how to use your product and need less support. The margin on a retained customer is almost always higher than on a new one.

How to Reduce Churn

Reducing churn starts with understanding why customers leave. The reasons fall into predictable categories, and each has a different solution. According to the SBA and SCORE business advisors:

1. Talk to churned customers. This is the single most valuable thing you can do. Contact every customer who leaves and ask why. You will find patterns quickly. Maybe your onboarding is confusing, your pricing does not match the value delivered, or a specific competitor keeps coming up. You cannot fix what you do not understand.
2. Fix onboarding. Most churn happens in the first 30–90 days. Customers who do not see value quickly leave. Create a structured onboarding process that ensures every new customer reaches their first success milestone as fast as possible.
3. Monitor engagement as an early warning. Customers who stop using your product or service are about to churn. Track usage patterns and reach out proactively when engagement drops. A phone call from someone who cares is often enough to save the relationship.
4. Improve your product based on feedback. Customers tell you what they need. If you are not building toward their feedback, they will find someone who does. Hold regular check-ins with your top customers and build a feedback loop into your process.
5. Create switching costs. Not through lock-in or punitive contracts, but through genuine value accumulation. When customers build workflows, history, and customizations on your platform, leaving becomes costly. Integrations, data history, and personalized configurations all increase switching costs organically.
6. Offer annual plans or longer commitments. Customers on annual plans churn at dramatically lower rates than monthly customers, partly because they made a commitment and partly because there are fewer decision points. Offering a discount for annual payment is almost always worth it.

Sources

• U.S. Small Business Administration — Strengthen Your Business — Customer retention strategies and growth guidance for small businesses
• SCORE — Templates & Resources — Free business planning tools and mentoring resources
• Harvard Business Review — Research on customer retention economics and the profit impact of reducing churn