A small monthly churn is much bigger than it looks
2% monthly revenue churn compounds to about 22% a year and caps customer lifetime value. At 5% it is about 46% a year, and it more than halves LTV. The monthly number hides both.
Download the PDF guideA monthly churn rate looks harmless on a dashboard. Compounded over a year, and run through lifetime value, it is one of the most important numbers in the business.
Monthly churn compounds
Annual churn is not twelve times the monthly rate, it is one minus the monthly survival rate to the power of twelve. So:
- 2% monthly revenue churn: about 22% a year (1 - 0.98^12).
- 5% monthly revenue churn: about 46% a year (1 - 0.95^12).
Going from 2% to 5% a month does not add a few points to the annual figure, it doubles it.
Churn sets your LTV
Gross-margin lifetime value is the monthly gross margin per account divided by the monthly churn rate. With the default assumptions of 300 euro average revenue per account and an 80% gross margin, the margin is 240 euro a month, so:
- At 2% monthly churn: LTV is about 12,000 euro (240 / 0.02).
- At 5% monthly churn: LTV is about 4,800 euro (240 / 0.05).
The same product, the same price, and the churn rate alone more than halves what a customer is worth. That is the number that decides how much you can afford to spend to acquire one. Put your own MRR, churn, ARPU and margin in and see the annual churn, GRR, NRR and LTV together.
Frequently asked questions
What does 2% monthly churn mean per year?
About 22% a year, not 24%, because it compounds: 1 minus 0.98 to the 12th power. At 5% monthly it is about 46% a year. Going from 2% to 5% a month more than doubles annual churn.
How does churn affect customer lifetime value?
LTV is gross-margin contribution divided by the churn rate, so higher churn directly caps lifetime value. Moving from 2% to 5% monthly churn more than halves LTV, which is why the small monthly number matters so much.
Run the numbers for your own case
Every figure above comes from a free tool you can use in your browser, with no signup.
Run your own SaaS metricsWhat to actually use
If churn and LTV are this load-bearing, you want them tracked automatically off your billing data, not recomputed in a spreadsheet each month:
- Track churn with ChartMogul (coming soon)Subscription analytics that pull MRR, churn, GRR, NRR and LTV straight from your billing system. Worth it once the monthly number is too important to get wrong by hand; a spreadsheet is fine while you are tiny.
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