TLDR: MRR churn and ARR churn measure the same thing (revenue lost from existing customers) on two different clocks. The mistake nearly everyone makes is comparing a monthly number to an annual one.
- MRR churn is the monthly rate on your monthly recurring revenue.
- ARR churn is the annual rate on your annual recurring revenue.
- They do not convert by multiplying by 12. Churn compounds. 3% monthly is about 30% annual, not 36%.
- Report the one that matches your billing cycle. Monthly-billed SaaS runs on MRR churn. Annual contracts run on ARR churn measured across renewal cohorts.
The single most common reporting error I see: a founder proudly says "we're only at 4% churn" and means monthly. That's 39% a year. Half their new sales are just filling a bucket with a hole in it.
What is MRR churn?
MRR churn is the percentage of your monthly recurring revenue you lose from existing customers in a given month. It answers a simple operating question: of the revenue I started the month with, how much walked out the door by the end of it?
The gross version:
Gross MRR churn = (churned MRR + downgrade MRR) / starting MRR
MRR churn is the number you watch weekly and monthly. It's a fast feedback loop. If you ship a bad pricing change or a broken onboarding flow, MRR churn tells you within a few weeks. That speed is the whole point of measuring monthly.
What is ARR churn?
ARR churn is the same idea on an annual base. It's the percentage of your annual recurring revenue lost from existing customers over a year, usually measured across renewal cohorts rather than calendar months.
Gross ARR churn = (churned ARR + downgrade ARR) / starting ARR
ARR churn is the planning and fundraising number. When an investor asks about retention, they're almost always thinking in annual terms. For a business built on annual contracts, a monthly churn view is close to meaningless, because most of your customers aren't up for renewal in any given month. The signal only appears at the renewal date.
So what's the actual difference?
Here's the part that trips people up. MRR churn and ARR churn are not two different metrics measuring two different things. They're the same leak measured on different clocks and different revenue bases. The confusion is almost entirely about the time window.
And critically, you cannot convert between them by multiplying or dividing by 12. Churn compounds. Every month you lose a slice of what remains, not a slice of where you started. So the correct conversion is:
Annual churn = 1 − (1 − monthly churn)12
Here's what that actually looks like:
| Monthly MRR churn | Naive (x12) | Real annualized churn |
|---|---|---|
| 1% | 12% | 11.4% |
| 2% | 24% | 21.5% |
| 3% | 36% | 30.6% |
| 4% | 48% | 39.0% |
| 5% | 60% | 46.0% |
| 7% | 84% | 58.2% |
| 10% | 120% | 71.8% |
Two things jump out. First, the naive x12 number always overstates the damage, because it double-counts customers who already left. Second, the gap between naive and real gets wider as churn rises. At 1% monthly the two are almost identical. At 10% monthly the naive figure is off by nearly 50 points.
You can see the same compounding play out in reverse with the retention curve tool, which plots how a cohort decays month over month at a given churn rate.
Which number should you actually report?
My rule: report the one that matches your billing cycle, then annualize for anyone outside the building.
- Monthly-billed, self-serve SaaS: run the business on monthly gross and net MRR churn. It's the fastest feedback loop you have. Annualize it in board decks so nobody confuses a 4% monthly rate with a 4% annual one.
- Annual-contract, sales-led SaaS: ARR churn measured on renewal cohorts is the real number. A monthly view of an annually-billed base is noise, because the churn event only happens at renewal. Track gross and net revenue retention annually.
- Mixed billing: normalize everything to MRR-equivalent first, then compute both. If you don't normalize, annual and monthly contracts distort each other and the blended number lies.
Whichever you pick, always show gross and net. Gross churn shows the size of the hole. Net churn shows the hole after expansion revenue fills part of it back in. A business can have 20% gross ARR churn and still post negative net churn if expansion is strong enough. See what is a good NRR for SaaS for how expansion changes the picture.
How do you calculate each one correctly?
The formulas are simple. The errors are where people get hurt:
- Don't include new customers. Churn is an existing-customer metric. New logos are growth, not retention. Mixing them in gives you a growth rate wearing a churn costume.
- Use revenue, not customer count. Customer churn and revenue churn are different metrics. Losing ten $50 customers is not the same as losing one $5,000 customer, even though the logo count matches.
- Pick one denominator and hold it. Starting MRR for the period. Don't switch to average or ending MRR halfway through your reporting history or the trend line becomes meaningless.
- Match the window to the billing cycle. Measuring ARR churn on a one-month window for an annual-contract business will show near-zero churn for eleven months and a cliff in month twelve. Use renewal cohorts.
For automating this, ChartMogul, Baremetrics, and ProfitWell (now part of Paddle) all compute MRR and ARR churn from your billing data. If you want to see them side by side before picking, our ProfitWell vs Baremetrics and Baremetrics vs ChartMogul comparisons break down the differences.
What's a good MRR churn rate in 2026?
Benchmarks depend heavily on segment, but as rough goalposts:
- B2B SaaS: under 2% monthly gross MRR churn is healthy (about 21% annualized). Under 1% monthly is best-in-class (about 11% annualized).
- B2C / self-serve SaaS: 3-5% monthly is normal. The buying decision is smaller and easier to reverse, so more people drift out.
- Enterprise SaaS (annual contracts): think in ARR terms. Gross revenue retention above 90% annually is the bar, best-in-class above 95%.
The blunt version: if your monthly MRR churn is above 5%, you're re-selling roughly half your revenue base every year just to stay flat. That's the treadmill, and no amount of top-of-funnel spending outruns it forever. For the fuller set of numbers by industry, see average SaaS churn rate.
Every point of gross churn you remove is worth more than a point of new growth, because retention compounds and acquisition doesn't. Fix the leak before you pour in more water.
Where to start
If you're not sure whether you're reading your churn numbers correctly, or whether monthly and annual are telling you different stories, start by finding out where the leak actually is:
- Use the MRR Impact Simulator to see how each point of monthly churn compounds into annual revenue lost at your scale.
- Run the churn rate calculator to compute both your monthly and annualized rates from the same inputs.
- Take the Churn Health Check to find which part of your retention system is leaking hardest.
Get the definitions straight first, then go fix the biggest hole. Most of the time it's involuntary churn, and it's the cheapest to close. See what is involuntary churn for that playbook.