Churn Rate vs Retention Rate: What's the Difference?

A SaaS company starts the month with 500 customers, loses 30, and gains 20 new ones. Its churn rate is 6%, while its retention rate is 94%. Both numbers are correct, but they answer different questions about the same customers.

Churn rate measures the percentage of customers a business loses, while retention rate measures the percentage it keeps. When both use the same starting group and reporting period, they add up to 100%. However, comparing different customer groups, time periods, or revenue metrics can produce misleading conclusions.

Understanding churn rate vs. retention rate helps businesses measure customer loyalty, identify losses, and report performance accurately.

What Is the Difference Between Churn Rate and Retention Rate?

The main difference between churn rate and retention rate is what they measure.

Customer churn rate measures the percentage of customers who stop doing business with a company during a given period. A higher churn rate means more customers are leaving.

Customer retention rate measures the percentage of customers a company keeps over the same period. A higher retention rate means more existing customers are staying.

For example, if a business starts with 100 customers and loses 8, its churn rate is 8%, and its retention rate is 92%.

Churn Rate vs Retention Rate: Key Differences

Both metrics are important for SaaS businesses, subscription services, and companies that depend on repeat customers.

Churn shows the size of customer losses, while retention shows how much of the existing customer base remains. Looking at both helps teams understand the same customer changes from different perspectives.

How to Calculate Customer Churn Rate

Customer churn rate measures the percentage of customers lost during a specific reporting period.

Customer Churn Rate Formula

Customer Churn Rate = (Customers Lost During the Period ÷ Customers at the Start of the Period) × 100

For this calculation, count customers who belonged to the starting customer group and left during the period.

Customer Churn Rate Example

Suppose a SaaS company records the following monthly data:

• Customers at the beginning of the month: 500

• Existing customers lost: 30

• New customers acquired: 20

• Customers remaining at month-end: 490

The calculation is:

Churn Rate = (30 ÷ 500) × 100 = 6%

The company's monthly customer churn rate is 6%.

This means 6 out of every 100 customers who were active at the beginning of the month left before the month ended.

The 20 newly acquired customers are not added to the starting customer count because they were not part of the original group being measured.

For this example, assume all newly acquired customers remain active through the end of the month and no cancelled customers reactivate.

Important: For paid SaaS churn, define which customers qualify as active. Free trials and free-plan users are usually measured separately from paying subscribers.

How to Calculate Customer Retention Rate

Customer retention rate measures the percentage of customers who remain with a business over a specific period.

Unlike churn rate, which focuses on lost customers, retention rate focuses on customers who continue using the product or service.

Customer Retention Rate Formula

Customer Retention Rate = (Customers from the Starting Group Who Remain ÷ Customers at the Start of the Period) × 100

For a straightforward customer-count example, you can also use:

Retention Rate = ((Customers at End − New Customers Acquired) ÷ Customers at Start) × 100

The second formula assumes the new-customer count represents customers acquired during the period who are still active at the end. Tracking the original group directly is more reliable when customers join, cancel, or reactivate within the same period.

Customer Retention Rate Example

Using the same monthly figures:

• Starting customers: 500

• Customers lost from the starting group: 30

• New customers: 20

• Ending customers: 490

First, remove new customers from the ending total:

490 − 20 = 470

Then calculate the retention rate:

Retention Rate = (470 ÷ 500) × 100 = 94%

The monthly customer retention rate is 94%.

This means the company retained 470 of the 500 customers it had at the beginning of the month.

The calculation also shows why customer growth and customer retention are different. A company can acquire new customers while continuing to lose a portion of its existing customer base.

Do Churn Rate and Retention Rate Always Add Up to 100%?

Yes, customer churn rate and customer retention rate add up to 100% when they use the same starting customer group, time period, and customer-status definition.

The relationship is:

Retention Rate = 100% − Churn Rate

Churn Rate = 100% − Retention Rate

Using the previous example:

• Customer churn rate = 6%

• Customer retention rate = 94%

• Total = 100%

This relationship works because every customer in the original group is classified as either retained or lost at the end of the measurement period.

However, the two reported figures may not add up to 100% when a business compares metrics calculated differently.

For example:

• Different reporting periods: Monthly churn cannot be directly compared with annual retention.

• Different customer groups: Churn among paying subscribers should not be compared with retention across both free and paid users.

• Different definitions: One report may count cancellations immediately, while another may count customers as retained until their subscription expires.

• Different metric types: Customer churn and net revenue retention measure different things and are not mathematical opposites.

Before comparing the numbers, check that the customer group, dates, and calculation methods match.

Monthly vs Annual Churn and Retention Rates

Monthly churn and annual churn measure customer losses over different periods.

A business with 2% monthly churn does not necessarily have 24% annual churn. Multiplying the monthly rate by 12 ignores the fact that each month's losses reduce the number of customers remaining from the original group.

If monthly churn stays constant, the annual calculation uses compounding.

Annual Churn Rate = [1 − (1 − Monthly Churn Rate)^12] × 100

For a constant 2% monthly churn rate:

Annual Churn Rate = [1 − (1 − 0.02)^12] × 100

Annual Churn Rate ≈ 21.5%

The corresponding annual retention rate is:

100% − 21.5% = 78.5%

This means approximately 78.5% of the original customer group would remain after 12 months, assuming the same 2% monthly churn rate throughout the year.

The formula is a projection based on a constant monthly rate. If churn changes from month to month, calculate annual retention using the actual customer data or the individual monthly rates.

Reporting tip: Always label metrics with their reporting periods. A 94% monthly retention rate and a 94% annual retention rate describe very different customer outcomes.

Customer Retention vs Revenue Retention: What's the Difference?

Customer retention measures how many customers stay. Revenue retention measures how much recurring revenue a business keeps from its existing customers.

This distinction matters because customers do not always contribute the same amount of revenue.

For example, losing one customer paying $2,000 per month can have a bigger financial impact than losing five customers paying $100 each.

Two important revenue metrics are gross revenue retention (GRR) and net revenue retention (NRR).

Revenue Retention Example

Suppose a SaaS company starts the month with $50,000 in monthly recurring revenue (MRR).

During the month:

• Revenue lost from cancellations: $3,000

• Revenue lost from downgrades: $1,000

• Additional revenue from upgrades: $6,000

Its gross revenue retention is:

GRR = (($50,000 − $3,000 − $1,000) ÷ $50,000) × 100 = 92%

Its net revenue retention is:

NRR = (($50,000 − $3,000 − $1,000 + $6,000) ÷ $50,000) × 100 = 104%

The company retained 92% of its starting recurring revenue before expansion. After including upgrades from existing customers, its net revenue retention reached 104%.

This is why NRR can exceed 100%, while customer retention and GRR cannot exceed 100% under standard definitions.

For additional definitions, see ChartMogul's retention metrics and benchmarks.

What Is a Good Churn Rate and Retention Rate for SaaS?

A good churn or retention rate depends on the business model, pricing, customer segment, and contract type.

There is no single benchmark that fits every SaaS company.

According to ChartMogul's customer churn research, SaaS businesses with average revenue per account (ARPA) below $10 typically experience around 6–7% monthly customer churn. Businesses with ARPA of $500 or more typically experience around 1–2%.

These are observed patterns, not universal targets.

Lower-priced products often serve customers who can cancel more easily, while higher-priced products may have longer contracts and more established customer relationships.

When evaluating churn and retention:

• Compare your rates with businesses of similar size and pricing.

• Use the same reporting period for every comparison.

• Review monthly trends instead of relying on one month's result.

• Compare customer retention with revenue retention.

• Examine retention across different customer groups to identify where losses are concentrated.

For instance, a 3% monthly churn rate may be comparatively strong for one business but concerning for another.

The most useful benchmark is one that matches your customers, pricing, and measurement method.

How to Track Churn Rate and Retention Rate Using CRM Data

Accurate churn and retention reporting starts with reliable customer records.

A CRM can help teams organize customer information, document changes in customer relationships, and identify accounts that need attention.

Here is a practical process.

1. Identify your starting customers.

Select the customers who were active at the beginning of the reporting period. Use a consistent definition of active customers, such as paying subscribers with an active subscription.

2. Record customer status changes.

Track which existing customers remain active, cancel, or reactivate. Keep cancellation dates and status histories accurate so customers are not counted incorrectly.

3. Calculate both metrics using the same customer group.

Use the starting customer count to calculate the percentage lost and the percentage retained. Separate new customer acquisition from retention reporting.

4. Review changes over time.

Compare results with earlier periods and examine customer groups separately. For example, review whether churn is higher among newly acquired customers, particular subscription plans, or specific industries.

5. Investigate customer losses.

Once the calculations reveal a problem, examine engagement history, support issues, feedback, and customer interactions. These records may help identify reasons for cancellations.

How KudosCRM Supports Customer Retention Work

KudosCRM helps teams manage customer relationships after a sale through lifecycle records, engagement scoring, customer activity history, support information, and customer-success playbooks.

Its customer success tools help teams identify accounts with declining engagement and organize follow-up activities.

For example, a customer success manager can review an account's engagement trend and communication history before deciding whether to schedule a check-in or investigate a problem.

These capabilities support retention management. Churn and retention percentage calculations should still use a consistent, verified customer dataset; a dedicated automatic churn-and-retention reporting feature should not be assumed.

Common Mistakes When Calculating Churn and Retention

Even simple formulas can produce misleading results when the underlying customer data is inconsistent.

Including new customers in the starting count

New customers should not increase the number of customers who were active at the beginning of the period. Doing so changes the denominator and understates churn.

Comparing monthly churn with annual retention

A monthly loss rate cannot be directly subtracted from an annual retention rate. Calculate both for matching periods before comparing them.

Mixing customer churn with revenue churn

Customer churn measures the number of customers lost. Revenue churn measures the recurring revenue lost. A company may have low customer churn but significant revenue losses when high-value customers cancel.

Ignoring cancellations and reactivations

A customer who cancels and later returns needs consistent treatment. Track status changes carefully, especially when customers join and leave within the same reporting window.

Using inconsistent customer definitions

If one report includes free-trial users and another includes only paying customers, the results measure different groups. Define the eligible customers before calculating either metric.

Conclusion

Churn rate and retention rate help businesses understand how many customers they lose and how many they keep. When calculated using the same customer group and reporting period, the two metrics add up to 100%. Tracking them consistently helps businesses identify customer losses, measure loyalty, and make better decisions to improve retention.

However, calculating these metrics is only the beginning. Businesses also need to understand why customers leave and take action before losing them. KudosCRM helps teams manage customer relationships through engagement scoring, customer lifecycle tracking, interaction history, and customer success workflows. Log in to KudosCRM to review customer activity, identify accounts showing signs of disengagement, and organize timely follow-ups to strengthen customer relationships.

Frequently Asked Questions

Is a 90% retention rate the same as a 10% churn rate?

Yes, if both metrics measure the same starting customer group over the same period. A 90% customer retention rate means the business kept 90% of its original customers and lost the remaining 10%. The relationship does not apply when comparing different customer groups or revenue-based metrics.

Can churn rate decrease while retention rate stays the same?

Yes, if the reports use different periods or customer groups. For the exact same starting group and measurement period, a decrease in customer churn must produce an equal increase in retention. Always check the calculation definitions before comparing the results.

Can customer retention rate exceed 100%?

No. Customer retention rate cannot exceed 100% because a business cannot retain more customers than were present in its original group. Net revenue retention, however, can exceed 100% when upgrades and additional purchases from existing customers outweigh revenue losses.

Should businesses calculate churn and retention monthly or annually?

Both can be useful. Monthly measurements help subscription businesses monitor changes more frequently, while annual measurements show longer-term customer retention. Choose reporting periods that match your billing model and customer relationships, and compare equivalent periods.

Which is more important: churn rate or retention rate?

Neither is universally more important. Both describe customer losses and continuity from opposite directions. Businesses should also monitor revenue retention because losing a small number of high-value customers can have a significant financial impact even when customer retention appears strong.