This is the single most quoted number in a small SaaS sale, and it is almost never wrong on purpose. It is wrong because “2%” is the answer to a question nobody agreed on. Change four definitional choices and the same subscription table yields anything from 1.8% to 9.4%.
TL;DR: A 2% monthly churn claim is the most common number in a SaaS sale and the easiest to compute three different ways. Here is how to reproduce it from the raw subscription export, and the four definitional choices that turn 9% into 2%.
Nearly every operator computes churn from whatever their billing dashboard displays by default, and every dashboard makes a different set of assumptions. A seller quoting 2% is usually quoting a figure they have genuinely seen on a screen for years. The number is real; the definition behind it is undisclosed. Your job is not to catch a liar, it is to recompute the same quantity under your own definition and see how far it moves.
Four mechanisms account for most of the gap between this claim and what the raw rows show. They are not mutually exclusive and they compound.
If the departing accounts are systematically larger than the surviving ones, counting customers instead of dollars understates the damage. A business losing 2% of its logos can be losing 6% of its MRR in the same month. Ask which one the number is, and if the answer is “both are about the same”, that itself is a testable claim.
Dividing cancellations by all accounts rather than by paying accounts at the start of the period dilutes the rate directly. A base padded with free-tier rows is the most common single source of a flattering churn figure.
An annual plan cannot cancel in eleven of twelve months. If annual customers sit in the denominator every month but can only leave in their renewal month, the monthly average is mechanically suppressed. This is why annual-heavy books look calm right up to the renewal cliff.
Some dashboards subtract returning customers from the cancellation count in the same period. That is a legitimate way to report net movement, but it is not gross churn, and it hides how leaky the base actually is.
Every step below runs on a subscription-level export in a spreadsheet. None of it needs access to the seller's live billing account, which matters, because as a buyer you will not get one.
These are the thresholds we use in our own reports. They are working thresholds rather than industry standards, and the right line for a given deal depends on contract length, tenure and how transferable the customer relationships are.
| What you find | Verdict | What to do about it |
|---|---|---|
| Revenue churn recomputes within 1 point of the claim | Green | The seller understands their own book. Move on to concentration and annual-plan decay. |
| Recomputes 1–3 points higher | Investigate | Usually a denominator or definitional difference. Ask them to walk you through their formula; the gap normally explains itself in one call. |
| Recomputes more than 3 points higher | Price it in | The number the business was marketed on is not the number the business produces. This is a valuation conversation, not a diligence footnote. |
| Logo and revenue churn diverge by more than 2× | Investigate | Departing accounts are much larger or much smaller than average. Either way, the mix matters more than the rate. |
| You cannot reproduce it at all | Red | Either the export is incomplete or the figure came from somewhere other than the billing data. Both are reasons to slow down. |
Ask for these before the LOI. After the LOI you are renegotiating rather than negotiating, and a seller who will not produce subscription-level rows has told you something useful either way.
Illustrative, to show the mechanism rather than to describe any real target. Take 1,000 rows, of which 250 are free-tier and 300 are annual. The dashboard divides 20 monthly cancellations by all 1,000 rows and reports 2.0%. Restrict to paying accounts and the denominator falls to 750, giving 2.7%. Exclude the 300 annual plans that cannot cancel this month and it is 4.4% on the monthly book. Weight by dollars, where the departing accounts happen to be above average size, and the revenue figure lands higher again. No step in that chain is dishonest. The 2.0% and the higher figure are both arithmetically correct answers to different questions, and only one of them describes what happens to your revenue after close.
Churn feeds valuation through the multiple, not through the headline revenue, which is why a two-point error compounds. If you are pricing off a multiple that assumed the reported retention, and retention is materially worse, the correct response is either a lower multiple or an earn-out that pays on retained revenue rather than on revenue at close. Do the recomputation before the LOI, because after the LOI you are renegotiating rather than negotiating.
The relevant tool on this site is the free churn calculator, which runs the arithmetic above on a file you paste in. The full method is documented in the 5-risk buyer-side method and the due-diligence checklist.
Every check on this page can be run by hand in a spreadsheet, and if you have the time you should. If you would rather not: send us the target's subscription export and we run the full human-reviewed analysis — logo churn, revenue churn, customer concentration, annual-plan decay, zombie MRR and an A–F revenue-quality grade. The free Starter tier covers one CSV per month, which is enough to check a single deal.
See a sample report → · Get the free 23-point checklist →
It is a strong figure if it is gross revenue churn on a paying, monthly-normalised base — that is roughly 22% annualised. The problem is that most quoted 2% figures are logo churn on a padded denominator, which is a materially different and much weaker claim. Establish which quantity you are being given before you judge it.
Almost always one of four things: whether free and trialling accounts sit in the denominator, whether the figure counts customers or dollars, whether annual plans are treated as unable to churn in non-renewal months, and whether reactivations are netted off. Each is worth between half a point and several points on its own.
Not reliably. You can sanity-check it against reported MRR movement — if MRR is flat while the seller claims 2% churn and strong new sales, the numbers have to reconcile somewhere — but a monthly summary cannot tell you whether the denominator was padded. Ask for subscription-level rows; a seller who will not provide them has told you something.