Retention Rate vs. Churn Rate: Why Both Matter

Your CEO says: “Our retention is 80%.”

Your CFO says: “Our churn is 20%.”

Are they talking about the same thing?

Technically yes. But they’re thinking about it differently.

And that difference changes how you see your business.

Retention vs. Churn: The Math

Retention Rate = % of customers who stayed

Churn Rate = % of customers who left

If you start with 100 customers and 20 leave, then:

Retention: 80%
Churn: 20%

They’re inverses. 80% + 20% = 100%.

So why distinguish?

Because the language you use affects how you think about the problem.

The Psychological Difference

When you say “retention is 80%,” it sounds good.

80% is a B grade. Most of your customers are staying. You’re probably doing okay.

When you say “churn is 20%,” it sounds bad.

You’re losing 1 in 5 customers every month. That’s significant.

Same metric. Different feelings.

The CFO uses churn language because it emphasizes the problem. The CEO uses retention language to show progress.

Both are useful. But they’re emphasizing different things.

Monthly vs. Annual

The timeframe changes everything.

Monthly churn: 5%

This seems low
“Only 5% of customers leave per month, what’s the worry?”

But over a year:

Month 1: 100 customers, 5 churn, 95 remain
Month 2: 95 customers, 4.75 churn, 90.25 remain
Month 3: 90.25 customers, 4.5 churn, 85.75 remain
…
Month 12: ~55 customers remain

Annual churn: 60%

This sounds really bad
“You’re losing 60% of your customer base per year?!”

But it’s the same as 5% monthly compounded.

The difference is perspective. Monthly churn of 5% = Annual churn of 60% (approximately).

When you’re evaluating health, you need to know the timeframe.

Why Both Matter

Retention is a forward-looking metric.

If 80% of customers are staying, and you acquire new customers, you’ll grow.

Retention tells you: “Will we grow, maintain, or shrink?”

If retention > acquisition growth rate, you grow.

If retention < acquisition growth rate, you shrink (even if you’re getting new customers).

Churn is a problem-focused metric.

Churn tells you where pain is.

20% monthly churn is a crisis. Something is broken.

5% monthly churn is acceptable for most businesses.

1% monthly churn is exceptional (most SaaS is 3-5% monthly).

You want to be in the “acceptable” range, not the “crisis” range.

The Difference Between Logo and Revenue Churn

Both retention and churn can be measured in two ways.

Logo churn: Did the customer account disappear?

Lost 5 customers out of 100 = 5% logo churn

Revenue churn: Did the revenue disappear?

Lost $50k in MRR out of $500k total = 10% revenue churn

These can be very different.

Example:

Lost 5 small customers ($1k MRR each): 5% logo churn, 1% revenue churn
Lost 1 big customer ($50k MRR): 1% logo churn, 10% revenue churn

If you only track logo churn, you think you’re doing great (95% retention).

If you only track revenue churn, you think you’re in trouble (90% retention).

Track both. They tell different stories.

(See “Logo Churn vs. Revenue Churn” article for deeper dive.)

Retention by Cohort

Your overall retention of 80% hides variation.

Some customer cohorts might have 90% retention. Others might have 60%.

Example:

Cohort A (acquired 12 months ago):

Started with 100
Now have 70
12-month retention: 70%

Cohort B (acquired 6 months ago):

Started with 100
Now have 80
6-month retention: 80%

Cohort C (acquired 3 months ago):

Started with 100
Now have 90
3-month retention: 90%

Your “overall” retention might be (70 + 80 + 90) / 300 = 80%.

But the trend is increasing: 70% → 80% → 90%.

This tells you: Your newer cohorts are stickier. Your product is improving.

Without cohort tracking, you’d see 80% and think it’s stable.

Retention as a Mortality Curve

Think of retention like a mortality curve in biology.

When you’re born, you have a high chance of surviving to age 5. The “5-year cohort survival” is maybe 99%.

When you’re 80, the “5-year cohort survival” is much lower, maybe 50%.

Customer retention is similar.

New customers (30-day cohort): Maybe 85% are still around Older customers (365-day cohort): Maybe 60% are still around

Your overall retention looks like 70% because you’re mixing young cohorts (higher retention) with old cohorts (lower retention).

This is normal and expected. You should see retention decline over time as customers naturally age and leave.

Acceptable Retention Ranges

SaaS (subscription businesses):

Monthly churn: 3-7% (retention: 93-97%)
Annual churn: 30-50% (retention: 50-70%)
Exceptional: <2% monthly churn (>98% retention)

E-commerce (repeat purchase):

Monthly retention: 40-60%
Cohort retention (12-month): 5-15% (high natural churn because not all customers repeat)

B2B SaaS:

Monthly churn: 1-3% (retention: 97-99%)
Annual churn: 10-30%
Enterprise tends to be lower churn than SMB

Freemium SaaS:

Free tier monthly churn: 40-60% (very high; people try and leave)
Paid tier monthly churn: 5-10% (higher than pure SaaS because they’re a different segment)

If your churn is higher than these ranges, something is wrong. If it’s lower, you’re doing great.

The Retention Cliff

Some businesses have a “retention cliff”—a point where customers suddenly start leaving.

Example:

Time Period	Retention
Month 1	95%
Month 2	94%
Month 3	92%
Month 4	90%
Month 5	80%
Month 6	75%
Month 7	74%

A cliff between months 4-5 (retention drops 10 percentage points).

This usually indicates a specific problem:

Trial period ended and customers had to start paying (many don’t)
A promised feature wasn’t delivered
Customers hit a limit (storage, usage cap, etc.)
Onboarding was successful for 4 months but then usage dropped off

Identify the cliff and investigate. There’s a fixable root cause.

How to Improve Retention

Higher retention is better than lower retention in almost all cases.

Why? Because retention compounds.

If you’re acquiring 10 new customers per month and have 95% retention, you grow.

If you’re acquiring 10 new customers per month and have 70% retention, you slowly shrink.

Over a year, the difference is dramatic.

To improve retention, focus on:

1. Early activation (first week)

If customers don’t get value in the first week, they churn. Investing in good onboarding pays massive dividends.

Even small improvements in week-1 activation can reduce 30-day churn by 20-30%.

2. Regular value delivery

Send users regular wins. “You saved 5 hours this month with our product.”

Make the value obvious and continuous.

3. Catch at-risk users early

Use churn prediction (behavioral signals) to identify at-risk customers and intervene (see “Predictive Churn” in Forecasting section).

4. Pricing alignment

If customers feel like they’re getting poor value for the price, they’ll churn.

Make sure pricing aligns with value delivered.

5. Customer success

For higher-touch segments (Enterprise, Mid-market), having a dedicated CS person reduces churn significantly.

The Takeaway

Retention and churn are inverses, but they emphasize different things.

Use retention language when talking about growth trajectory.

Use churn language when talking about problems to solve.

Track both at cohort level (not just overall). Cohort retention reveals trends invisible in aggregate numbers.

Compare your retention to benchmarks in your category. If you’re significantly worse, investigate.

Focus on improving early-stage retention (first 30 days). Small wins here compound.

We help you track retention by cohort, identify retention cliffs, and build strategies to improve your overall retention.