Churn is the number of customers who cancel their subscriptions to your platform or the amount of revenue lost over a given time period.
# of Customers Who Cancelled This Month ÷ Total Customers at Beginning of Month
What is a Churn Rate?
SaaS companies need to track how many customers they lose month-over-month or year-over-year, this is called churn. The rate in which businesses lose customers is known as the Churn Rate.
Why is it important?
If you want to create revenue growth, you have to add new customers and keep the ones you have, there is no getting around it.
Many SaaS businesses get caught up in deeper metrics and can overlook their churn problems. Retaining and acquiring customers is the name of the game in SaaS, and if you aren’t tracking your customer loss or renewal rates you will most likely wake up without a business soon.
Acceptable Churn Rates can vary depending upon your SaaS business, but B2B industry benchmarks suggest you need <5% monthly churn. However, some B2C businesses can have a higher acceptable churn rate. Churn rates are relative to your business and should be analyzed to understand opportunities for retaining customers and finding holes in your product’s value.
Note: This calculation looks at customer churn, but you should also look at revenue churn (MRR Churn). It is the same calculation but with the amount of revenue lost for the month divided by the total revenue at the beginning of the month.