Monthly vs Annual Churn: How to Calculate Correctly
Compounding formula, conversion table, and segment benchmarks from 939 B2B companies (Q1-Q3 2025)
Annual churn is NOT monthly churn times 12. The correct formula uses compounding: Annual = 1 - (1 - Monthly)^12. At 3% monthly churn, the difference is 5.4 percentage points (36% naive vs 30.6% actual). B2B SaaS benchmarks: SMB 3.5% monthly / 34.8% annual, Mid-Market 2.0% / 21.5%, Enterprise 0.8% / 9.2% (Optifai Pipeline Study, 2026, N=939 B2B SaaS companies).
Annual churn is NOT monthly churn times 12. The correct formula uses compounding: Annual = 1 - (1 - Monthly)^12. At 3% monthly churn, the difference is 5.4 percentage points (36% naive vs 30.6% actual). B2B SaaS benchmarks: SMB 3.5% monthly / 34.8% annual, Mid-Market 2.0% / 21.5%, Enterprise 0.8% / 9.2%. Source: Optifai Sales Ops Benchmark (N=939 companies, Q1-Q3 2025)
Calculate your churn impact
The Formula: Monthly to Annual Churn
Each month, churn compounds on the remaining customer base -- not the original base. This is the same principle as compound interest, but applied to customer loss.
Why Multiplying by 12 Is Wrong
Assumes each month's churn applies to the original base. Ignores the shrinking denominator.
Overstates churn. Misleads board reporting.
Accounts for the fact that each month's churn applies to the remaining base, not the original.
Accurate. Use this for all reporting.
The x12 error gets progressively worse at higher churn rates. At 5% monthly, the error is 14 percentage points -- potentially misleading board reporting and investor metrics.
Monthly to Annual Churn Conversion Table
| Monthly Churn | Annual (Wrong: x12) | Annual (Correct: Compounded) | Error |
|---|---|---|---|
| 1.0% | 12.0% | 11.4% | +0.6pt |
| 2.0% | 24.0% | 21.5% | +2.5pt |
| 3.0% | 36.0% | 30.6% | +5.4pt |
| 4.0% | 48.0% | 38.7% | +9.3pt |
| 5.0% | 60.0% | 46.0% | +14.0pt |
Source: Optifai Sales Ops Benchmark (N=939 companies, Q1-Q3 2025)
Churn Benchmarks by Segment: Monthly and Annual
Source: Optifai Pipeline Study (2026, N=939 B2B SaaS companies).
Which Timeframe to Use When
- Track month-over-month trends in real time
- Identify seasonal patterns and spikes
- Measure impact of retention initiatives quickly
- Compare against monthly cohort performance
- Customer Success team KPIs and dashboards
- Board decks and investor updates
- Financial modeling and forecasting
- LTV calculations (LTV = ARPA / Annual Churn)
- Benchmarking against public company data
- Long-term strategic planning
Key Insights
- The error compounds: At low churn rates (1%), the x12 shortcut is off by only 0.6 percentage points. At high churn rates (5%), the error balloons to 14 percentage points -- enough to materially misrepresent unit economics to investors.
- Contract length matters: Monthly-contract SMB products show higher monthly churn but more granular data. Annual-contract Enterprise products mask monthly churn behind renewal cycles, making quarterly or annual measurement more appropriate.
- Report both numbers: Best practice is to track monthly churn internally for operational speed, then convert to annual using the compounding formula for board and investor communication. Never mix the two without labeling.
- Revenue vs. logo churn: The same compounding formula applies to both logo churn (customer count) and revenue churn (MRR loss). Revenue churn is typically lower than logo churn when expansion revenue offsets losses from smaller accounts.
- Cohort analysis reveals more: A single churn number hides variation across customer segments, acquisition channels, and product lines. Break down churn by cohort to identify where the real problems -- and opportunities -- are.
Source: Optifai Pipeline Study (2026, N=939 B2B SaaS companies).
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Calculate Your Churn Impact
See exactly how much revenue you lose to churn each year. Enter your monthly churn rate and MRR to get the compounded annual impact -- plus scenarios for reducing churn by 1-5%.
Calculate Churn ImpactMethodology
This analysis uses monthly and annual churn data from 939 B2B companies between Q1-Q3 2025. Monthly churn rates are converted to annual using the compounding formula. Segment benchmarks reflect median values within each company size tier.
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Update History
Data last updated: February 16, 2026
- ✓Evergreen formatting: titles and headings no longer include year references
- ✓Metadata centralized for consistency across all benchmark pages
- ✓Initial release of monthly vs annual churn calculation benchmarks
- ✓Conversion table and compounding formula (N=939 companies)
- ✓Segment benchmarks: SMB, Mid-Market, Enterprise, Best-in-class
Regularly updated with latest industry data
Optifai Research Team
VerifiedLed by Yusuke Onishi (Founder & CEO) with 15+ years of B2B sales operations experience. Our research team analyzes pipeline data from 939+ companies to deliver actionable benchmarks for sales leaders.