Customer churn – the rate at which a business loses clients over a given time – is a top concern for businesses, especially those that operate on subscription models. Defining an ideal churn rate is difficult because churn involves many factors. According to a large-scale analysis from 2024, the common target churn rate of 5% is unrealistic for most businesses – especially for software-as-a-service (SaaS) businesses and early-stage businesses.

No single tactic can prevent churn. Companies must understand their customers with as much clarity and detail as possible, assess how well products, services, and experiences meet customers' needs, and strike a balance that satisfies clients realistically.

Below, we'll explain what customer churn is, how it affects your profit, its causes, and what you can do to minimise it.

Key takeaways

• Customer churn is the rate at which a business loses customers over a time period. It's split between voluntary churn – customers who choose to end their subscriptions – and involuntary churn – customers who are lost to failed payments.

• Churn is typically measured monthly, quarterly, or annually by dividing the number of customers lost during a time period by the number at the start of the period.

• The median annual churn rate for midmarket and enterprise SaaS companies is 5%–7%. It's higher for B2C subscription businesses and those focused on small and medium-sized enterprises (SMEs).

What is churn?

Churn refers to the loss of customers over time. It's often expressed as a percentage and is a key metric for businesses, especially those with subscription-based models. Churn happens when customers cancel their subscriptions or stop buying products; this effectively ends their relationships with a business and reduces revenue.

Types of customer churn

Businesses shouldn't treat all types of churn equally. To effectively reduce your churn rate, you must distinguish between customers who actively choose to leave and those who are unintentionally dropped by payment failures. Churn generally falls into two primary categories:

• Voluntary churn: This occurs when a customer consciously decides to cancel their subscription or stop purchasing from your business. Voluntary churn is typically driven by dissatisfaction with the product, a poor customer experience, budget constraints, or a decision to switch to a competitor. Combating it requires improvements to product value, pricing strategy, and customer service.

• Involuntary (passive) churn: This happens when a customer's subscription ends due to an automated payment failure. Involuntary churn is almost entirely driven by payment friction, such as expired credit cards, insufficient funds, network declines, or lost cards. Combating it requires technical infrastructure, such as automated card updaters, smart payment retries, and proactive dunning workflows.

How to calculate customer churn

To calculate customer churn rate, divide the number of customers lost during a time period by the number at the start of the period, then multiply the result by 100. Here’s the formula:

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

For example, you might start the month with 1,000 customers and lose 30. Your monthly churn rate would be 3%.

Customer Churn Rate = (30 ÷ 1,000) x 100 = 3%

You can use a similar formula to calculate revenue churn rate (also called MRR churn), which measures the percentage of recurring revenue lost.

• Revenue Churn Rate = (Revenue Lost During Period ÷ Revenue at Start of Period) x 100
  

Industry benchmarks for customer churn

Churn benchmarks vary significantly by business model, customer segment, and industry:

• B2B SaaS: B2B software typically experiences lower churn due to annual contracts, high switching costs, and embedded workflows. The average monthly churn rate is 3.5% for these companies.

• B2C subscriptions: Customer-facing subscriptions, such as subscription boxes or apps, face higher volatility and price sensitivity. B2C subscription businesses generally see monthly churn rates of 6.0%–10.0%.

• Media and streaming: Digital media and over-the-top (OTT) streaming services often experience cyclical, content-driven cancellation behaviour. The average monthly churn rate is 6.3% for streaming services.

• Involuntary churn baseline: Regardless of the industry, payment failures represent a massive source of customer attrition. Across all subscription models, involuntary churn can account for up to 40% of a company's total churn, underscoring the importance of automated payment recovery infrastructure.

How does customer churn affect businesses?

Customer churn affects almost every part of a subscription business, directly or indirectly. Here's how:

• Revenue impact: A regular loss of customers means a steady decline in revenue, which can be particularly challenging for businesses that rely heavily on subscription models. This impact can become more pronounced after considering the long-term value of lost customers.

• Acquisition cost: Acquiring new customers is usually much more expensive than retaining existing ones. A high churn rate increases pressure on the business to find new customers, which often involves significant marketing and sales costs.

• Brand reputation: Frequent customer turnover can harm a business's reputation. If many people are leaving, that can signal dissatisfaction with the product or service and deter potential customers. Customers who feel frustrated with the business might also share their negative experiences online or by word of mouth.

• Impact on customer insight and data: Regular churn disrupts the flow of consistent customer data, making it harder to analyse trends, understand customer needs, and customise products and services accordingly.

• Employee morale and productivity: High churn rates can affect employee morale because it forces teams to grapple with losing customers they've worked hard to acquire and serve. This can lead to reduced productivity and challenges in maintaining a motivated workforce.

• Investor confidence: Typically, investors see a high churn rate as a warning sign for a business that relies on – or is seeking – outside funding.

• Operational strain: High churn can lead to operational inefficiency. As customer numbers fluctuate, your business might face challenges in scaling operations appropriately, leading to over- or underutilisation of resources.

• Market position and competitive edge: In highly competitive markets, a high churn rate can weaken your business's position by allowing competitors to target your churned clients and strengthen their market positions.

What causes customer churn?

Here are some common reasons for customer churn:

• Poor customer experience: One of the primary reasons for customer churn is a subpar customer experience. This can range from issues with the product or service to inadequate customer support. If customers feel neglected, misunderstood, or frustrated, they're more likely to end their relationships with the business.

• Lack of quality engagement: Ineffective communication can make customers feel disconnected from your brand. Whether it comes in the form of too many unhelpful messages or not enough communication when customers need it, a communication mismatch can make customers feel indifferent about your products or services. That might push them to leave.

• Pricing issues: Price sensitivity is a significant factor. If customers believe they're not receiving value for their money or a competitor offers a more attractive price point, they could decide to leave. Sudden price increases can also contribute to churn.

• Product or service quality: If the quality of the product or service deteriorates or doesn't meet changing expectations, customers can turn to your competitors. Quality issues can range from functionality and reliability to the user experience.

• Inadequate customer support: Timely, effective customer support is key. If customers consistently face long wait times, unhelpful responses, or unresolved issues, their trust in the brand will diminish and they might leave.

• Lack of personalisation: Customers expect businesses to customise experiences to their preferences and needs. A one-size-fits-all approach can cause dissatisfaction and the loss of customers.

• Market competition: Businesses that face intense competition and don't adapt to changing market trends risk losing their customers. If competitors offer more innovative, cost-effective, or appealing products and services, customers might be tempted to switch.

• Unexpected changes or instability: Changing policies, removing features, and inconsistent product or service delivery can frustrate customers enough to leave.

How to model customer churn

Predicting customer churn before it happens allows your business to transition from reactive support to proactive retention. Modelling churn involves analysing historical data to identify the early warning signs that a user is preparing to cancel.

Depending on the data volume and business complexity, data science and analytics teams generally rely on a few core techniques for predictive churn modelling:

• Logistic regression: A foundational statistical method used to predict binary outcomes, which determines the probability that a specific customer will stay or leave. It calculates the odds of churn based on specific variables. For example, a high number of service complaints indicates higher churn odds.

• Decision trees: This model works well for understanding the complex pathways that lead to customer churn by breaking decisions down into a series of binary choices. It maps out customer attributes in a treelike structure.

• Neural networks: An advanced machine learning strategy capable of capturing complex, non-linear relationships within data. This approach is ideal when the factors that influence a customer's decision to leave are highly multifaceted and intertwined.

• Ensemble methods: This technique combines multiple predictive models to improve overall prediction accuracy, making it a highly effective device for anticipating customer defections.

Choosing the right approach requires carefully assessing your available data quality, integration capabilities, and operational resources. The best choice depends on the nature of your business and the specific customer data you have available.

How to find out why your customers churn

Many businesses consider customer churn a key metric for decision-making. Whether your churn rate is high or low, many contributing factors must be examined. Your churn rate itself won't tell you what causes your customers to leave; for that, you must dig deeper.

Here's how to measure churn and understand what it tells you about your business's situation:

• Customer feedback and surveys: Contact current and former customers through surveys and feedback forms to gain insight into why customers are leaving. Personalise these surveys to pinpoint specific issues such as satisfaction with your product or service, pricing concerns, and customer support experiences.

• Analyse customer data: Look for patterns or trends in your customer data such as usage frequency, engagement level, support ticket history, and purchase patterns.

• Monitor customer support interactions: Review interactions between customers and your support team. These can reveal common challenges, issues, or queries that might contribute to customer dissatisfaction and eventual churn.

• Engagement metrics: Analyse how your customers use your product or service. Low or irregular usage patterns can indicate customers are likely to churn.

• Competitive analysis: Understand your market position by analysing your competitors. Are they offering something you're not? Is there a feature or service that's drawing your customers away and contributing to churn?

• Customer journey analysis: Map out the customer journey to identify the point at which customers are churning. Have your clients left after a trial period, a specific update, or a change in pricing?

• Follow up with churned customers: Contact customers who've left, if possible. A personal conversation can sometimes reveal more than a survey. Customers who've chosen to leave might provide honest feedback about their reasons for doing so.

• Segmentation analysis: Break down your customer base into segments based on demographics, behaviour, or other criteria. This can help you determine whether certain groups are more prone to churn than others.

• Financial impact analysis: Assess the true financial impact of churn. When customers leave, which of them have the biggest impact on your revenue? This can help you prioritise your retention efforts for high-value customers.

• Experimentation and A/B testing: Experiment with different strategies to see what works best in retaining customers. A/B testing on elements such as pricing, features, and customer service approaches can provide practical insight.

90-day churn rate benchmark​

Your 90-day churn rate can be one of the most revealing cohort metrics for subscription businesses. The first 90 days of a customer's lifecycle represent the important activation and onboarding phase. Across subscription and SaaS models, a disproportionately large percentage of total churn happens within the first three months of a contract. A 2026 report on SaaS products found that only about 30% of new users stayed after this period.

High early-stage churn is almost always an indicator of poor customer onboarding, a confusing user interface, or misaligned expectations set during the initial sales process.

Examples of customer churn

To effectively diagnose and address churn, it helps to look at how customer departures occur in the real world. Because churn can be triggered by product friction, pricing shifts, or technical payment failures, examining specific examples across different business models can clarify where the issues are appearing.

The expired card

A customer subscribes to an annual B2B software licence. When the renewal date arrives, the transaction fails because the corporate credit card on file expired the previous month. Without an automated card updater or smart retry logic in place, the account is terminated after a few automated decline notices, resulting in unintentional revenue loss.

The onboarding bottleneck

A midsize company signs up for a new project management platform. The initial setup requires complex data migration and team permissions that prove too difficult to configure. Because the team fails to achieve value within the first 30 days, the administrator cancels the subscription at the end of the initial billing cycle.

The seasonal binge

A customer subscribes to a streaming service specifically to watch a newly released season of a popular television series. Once the season concludes two weeks later, the subscriber immediately cancels their plan before the next monthly renewal.

The feature migration backlash

A software tool reorganises its subscription tiers, moving previously included advanced reporting features behind a higher-priced enterprise tier. Price-sensitive SME users who rely on those reports determine the new tier is cost-prohibitive and migrate to a competing platform.

The silent budget cut

During quarterly budget reviews, an enterprise department audits its recurring software expenses to cut costs. Finding that only a fraction of their purchased user seats are being actively logged into each week, the finance team downgrades their licence count or cancels the contract entirely.

7 ways to reduce churn

These churn-mitigating strategies can help you protect annual recurring revenue before and after clients leave.

Personalising customer engagement

• Customised communication: Adapt your communications by using customer data. In emails, address customers by name, and segment your audience to make your content relevant to their interests based on past interactions. This creates a more intimate and engaging experience for customers.

• Personalised recommendations: Use a customer's purchase history and browsing behaviour to provide personalised product and service recommendations. This enhances the user's experience while demonstrating you cater to their individual needs.

• Personalised offers and incentives: Create special offers or incentives specific to individual consumer preferences. These can include exclusive deals, early access to new products, and personalised discounts, which increase loyalty and reduce the likelihood of churn.

• Engagement across channels: Build a stronger connection by interacting with your customers where they're most active, whether that's through email, on social media, or on your platform.

• Interactive user experience: Allow customers to have a voice in how they experience your service or product. Features such as customisable dashboards, preference-based notifications, and interactive tools can help them take advantage of your offering.

• Predictive personalisation: Use artificial intelligence (AI) and machine learning tools to predict customers' needs and preferences before they articulate them. This proactive approach can create a sense of delight and surprise and foster deeper loyalty.

• Consistent follow-up and check-ins: Use personalised emails and surveys to check in with your customers regularly and ensure their needs are met.

• Customer journey mapping: Understand and map out the individual customer journey. This will help you identify specific touchpoints where personalised engagement can be most effective, whether it's during onboarding, after the purchase, or at renewal.

Providing exceptional customer support

• Fast, responsive service: Empower your customer support team to respond to all queries as quickly as possible. Implementing efficient response systems such as chatbots for immediate assistance – coupled with a dedicated team for more complex questions – can significantly enhance the customer experience.

• Trained and knowledgeable staff: Invest in training your customer support team so each member is knowledgeable about your products and services and skilled in handling enquiries and complaints with empathy and efficiency.

• Multiple support channels: Offer support across channels, including phone, email, live chat, and social media. This omnichannel approach lets customers contact you through their preferred mediums, making support more accessible and convenient.

• Personalised support experience: Train your team to give personal attention to each customer, acknowledge past interactions, and understand individual customer histories to make the customer's experience more satisfying.

• Proactive support: Don't wait for customers to contact you with problems. Proactively monitor for potential issues and contact customers to offer help. This could involve checking in after a purchase, offering assistance during onboarding, or providing tips and best practices.

• Empowering customers with self-service options: Provide comprehensive FAQs, tutorials, and forums where customers can find answers to common questions and issues. Empowering customers to solve their problems can improve satisfaction while reducing the burden on your support team.

• Follow up after resolution: Once your team has resolved a customer's issue, follow up to ensure they're satisfied and offer further assistance if needed. This post-resolution check-in can leave a lasting positive impression.

• Escalation protocol: Devise a clear protocol for when it's necessary to escalate issues. Move complex problems to the appropriate level of support for timely resolution.

• Consistent quality: Provide reliable, quality support in all customer interactions.

Encouraging a customer-centric workplace culture

• Leadership commitment: Executives should set the tone for the rest of the organisation by demonstrating a genuine commitment to customer service. This means leading by example and consistently reinforcing the importance of prioritising the customer in every business decision.

• Empowered employees: Empower employees at all levels to make decisions that improve customer experience. Your team members will serve customers better when they feel they have the responsibility and authority to solve issues on their own.

• Cross-departmental collaboration: Encourage collaboration between departments with the common goal of improving the customer experience. Sales, marketing, product development, and customer service teams should share insight and tactics so your organisation can provide a cohesive experience.

• Reward and recognition programmes: Implement recognition programmes that reward employees for exceptional customer service. This will motivate your team while reinforcing the value of customer-focused behaviour.

• Customer-centric metrics and key performance indicators (KPIs): Establish KPIs that focus on customer satisfaction, loyalty, and retention. Measuring and evaluating performance against these metrics will keep your team focused on the customer's perspective.

• Regular customer interaction for all employees: Encourage employees throughout the organisation to have regular interactions with customers. These can include participating in customer support calls, attending customer meetings, and engaging in customer feedback sessions. Direct interaction with customers can provide employees with unique insight and strengthen the customer-centric mindset.

• Creating a feedback-friendly environment: Foster an internal culture where feedback – from customers and employees – is encouraged and valued. An environment that embraces constructive feedback is more adaptable and responsive to customer needs.

• Share customer stories regularly: Share customer success stories and testimonials throughout the organisation. This helps you celebrate achievements and focus on the tangible impact of a customer-centric approach.

Making the most of technology

• Advanced analytics tools: Use analytics tools to gain deeper insight into customer behaviour, preferences, and patterns. This data-driven approach enables more informed decision-making and targeted strategies to reduce churn.

• Customer relationship management (CRM) systems: Use a comprehensive CRM system to maintain organised records of all customer interactions. This can help you provide personalised service and identify potential churn risks early.

• Automated customer service: Invest in automated solutions such as chatbots and AI-driven support tools. These can provide customers with quick, efficient service for basic enquiries, freeing up human agents for more complex issues.

• Mobile optimisation: Refine your services and communications for mobile devices. A mobile-friendly approach is important for engaging and retaining customers.

• Social media monitoring: Use social media monitoring tools to track what customers are saying about your brand. This provides real-time insight into customer sentiment and can help you address issues before they lead to churn.

• Easy integration of systems: Your products and services should easily integrate with all your offerings as well as complementary external products.

• Cloud-based solutions: Adopt cloud-based solutions for flexibility and scalability.

• E-commerce and self-service platforms: Develop intuitive e-commerce platforms and self-service portals that allow customers to easily browse, purchase, and manage their accounts. A user-friendly online experience is important for customer retention.

Creating an actionable feedback loop

• Easy feedback channels: Provide convenient ways for customers to give feedback. This can include surveys, feedback forms on your website, social media interactions, and direct email channels.

• Regular customer surveys: Conduct regular surveys to gauge customer satisfaction and gather insight. These surveys can be transactional (post-purchase or post-interaction) or relationship surveys that assess the overall customer experience.

• Pay attention to social media and online reviews: Monitor social media platforms and online review sites for customer feedback and sentiments. These platforms provide unfiltered opinions that, when taken in context, can help businesses understand customer satisfaction and areas for improvement.

• Incorporate feedback in decision-making: Establish a culture where customer feedback is regularly reviewed and considered in business decisions. This will demonstrate to customers their opinions are valued and have the power to influence the product or service.

• Close the loop with respondents: Follow up with customers who have provided feedback, especially those who have reported issues or dissatisfaction. Address their concerns and communicate the steps you have taken to resolve their issues or implement their suggestions.

• Data analysis and trend-spotting: Identify trends and patterns in customer feedback through data analysis tools. This can help you pinpoint systemic issues or opportunities for improvement.

• Transparent communication: Be transparent with customers about how you're using their feedback. Updating customers regularly about changes made in response to their feedback can reinforce the value of customer opinions.

• Iterative process: View the feedback loop as an ongoing, iterative process. Refine how you collect, analyse, and respond to feedback to keep improving the customer experience.

Continually improving products and services

• Using advanced analytics for insight-driven improvements: Study advanced analytics to understand how customers are using your products and services. Go beyond surface-level metrics by looking at user behaviour, preferences, and challenges. Consider using predictive analytics to anticipate customer needs and trends, which can allow you to make improvements proactively.

• Collaborative development with customers: Foster a development process that includes customer input, often referred to as cocreation. Contact a group of customers during the development phase of products or features to confirm improvements you want to make will meet customer needs and expectations. This tactic can improve the product and strengthen customer relationships and loyalty.

• Adopting agile methodologies for rapid improvement: Implement agile methodologies in product development and service delivery. Customer feedback, emerging market trends, and new insight can help your team quickly adapt and enhance your offerings.

• Long-term partnerships to bolster offerings: Collaborate with other businesses or technology providers to integrate additional features, capabilities, or content that make your products more valuable to your customers. This can provide a competitive edge and address customer needs in ways internal development cannot.

Being flexible and transparent about payment

• Value-based pricing strategy: Develop a pricing strategy that reflects the value your product or service provides to customers. Choose pricing that customers regard as fair and that lets you stay competitive.

• Transparent, simple billing: Your billing process should be as transparent and straightforward as possible. Customers should be able to understand what they're being charged for and why. Explain the billing structure clearly and provide detailed invoices while avoiding hidden fees. Transparency builds trust and can significantly reduce confusion and dissatisfaction that might lead to churn.

• Regular market and competitor analysis: Closely watch market trends and competitor pricing. Regular analysis lets you adjust your pricing strategy in response to market changes and maintain a strong value proposition.

• Flexible pricing options: Offer a range of pricing options (e.g., tiered pricing, volume discounts, bundles) to cater to different customers' needs and preferences. This lets customers choose the option that best suits their needs and budget, which can lead to greater satisfaction and reduce the likelihood of churn.

• Effectively communicating price changes: If you must adjust prices, communicate that information to your customers with as much advance notice as possible. Explain the reasons for the price change and emphasise any improvements or additional value they'll receive.

• Regular review and adjustment of pricing strategy: Treat your pricing strategy as a dynamic component of your business. Regularly adjust your pricing to meet your business goals, customer expectations, and market conditions. This process demonstrates a commitment to fair pricing.

How Stripe Billing can help

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Stripe Billing can help you:

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FAQs about customer churn