{"id":12152,"date":"2018-09-18T22:05:33","date_gmt":"2018-09-18T20:05:33","guid":{"rendered":"https:\/\/chartmogul.com\/blog\/?p=12152"},"modified":"2023-08-10T17:33:50","modified_gmt":"2023-08-10T15:33:50","slug":"saas-metrics-refresher-churn","status":"publish","type":"post","link":"https:\/\/chartmogul.com\/blog\/saas-metrics-refresher-churn\/","title":{"rendered":"SaaS Metrics Refresher #3: Churn"},"content":{"rendered":"

If we look back to our MRR Movements chart from the previous lesson, you’ll see that there are two ways in which your SaaS revenue can shrink: either through customer downgrades (contraction) or churn:<\/p>\n

\"MRR<\/p>\n

Churn definitions<\/h1>\n

In SaaS, there are two form of churn, both of which are useful to analyze in certain scenarios. Measuring churn is all about measuring lost business<\/em>, either through the loss of customers (logos) or the loss of revenue.<\/p>\n

Customer Churn Rate<\/h2>\n

The rate at which your customers are cancelling their subscriptions.<\/p>\n

\"Churn<\/p>\n

Net MRR Churn Rate<\/h2>\n

The rate at which you are losing MRR through downgrades and cancellations, offset by account expansions.<\/p>\n

\"Net<\/p>\n

So the two measurements above help us measure the loss of revenue in our business in two different ways. One important thing to remember: churn is always measured across a specific time period<\/strong>. If someone tells you their churn rate, think about what period they could be referencing \u2014 it could be the current calendar month, a 30-day rolling window, the previous quarter or even across the company’s lifetime. Churn rate is always an average across a given period.<\/p>\n

Is my churn rate too high?<\/h1>\n

Every subscription business has churn \u2014 it’s unavoidable. There’s also no common “acceptable” level of churn as it depends on the characteristics of your business.<\/p>\n

The Pacific Crest annual SaaS survey showed that around 70% of SaaS companies had annual customer churn <10%, of which 75% were <5%.<\/p>\n

When looking at annual<\/strong> churn in SaaS, keeping under 5% is a reasonable goal. Don’t confuse this with monthly<\/strong> churn though! 5% annually equates to less than 1% monthly customer churn rate.<\/p>\n

Churn rate will start to have an outsized effect on your revenue as you grow. It’s always better to tackle it before it becomes a huge problem.<\/p>\n

Let’s listen to Freshworks on this one:<\/p>\n

“Companies put people on to a customer when they begin to show signs of leaving. A sensible approach to staying in control, is to engage and help customers find value from the very beginning. Adopt a proactive method towards building a trustful business relationship from the start and at various touch points throughout the customer lifecycle. This presents opportunities to iron out churn indications as they emerge, rather than having to firefight and being reactive.”<\/p>\n

Arun Mani, Freshworks<\/p><\/blockquote>\n

So in other words, avoid being reactive to churn before it’s too late.<\/p>\n

Different types of churn<\/h1>\n

It’s useful to categorize churn in order to better understand what’s driving your customers to leave. In SaaS we use this common high-level categorization:<\/p>\n