Customer Churn Rate and MRR Churn Rate
There are two types for churn. Customer churn is the rate at which you are losing specific customers/accounts. Revenue (aka MRR) churn measures the overall volume of recurring revenue lost in a given period.
If you have 10 customers, but one of them is responsible for a quarter of your monthly revenue losing that customer would put your customer churn at 10%, but your revenue churn would be a staggering 25%! That’s why we always recommend that you keep an eye on MRR churn first and foremost.
Proactive Churn vs Delinquent Churn
Voluntary (aka proactive) churn comes from people that cancelled. Delinquent Churn (aka involuntary or passive) churn comes from people whose credit cards failed or expired and failed to update them. It’s churn either way, but you tackle it differently.
Delinquent churn should be kept in place and addressed before it gets out of hand. Consider reactivation campaigns to deal with passive churn. Reactivation MRR could be a powerful growth lever for your organization.
Negative churn is considered the Holy Grail of SaaS growth and a symbol of a very strong product and a business model that supports it.
It occurs when the amount of new revenue added from the existing customer base (through expansions and reactivations) during a specific period is larger than the amount lost from cancellations and contractions during that same period.
What’s a good churn rate?
You may have heard that an acceptable SaaS churn rate is in the 5-7% range annually. However, a good churn rate depends on the specific circumstances of your company and team. Naturally, you want a churn rate to be as low as possible.
🦄 Pro tip!
Start from your LTV/CAC ratio and work backward from there to find the Goldilocks Zone of your churn and other SaaS metrics.
At which point in the lifespan of a subscription is churn at its highest? Does churn stabilize after some period of time? These questions can be answered with cohort analysis. A cohort analysis visualises the way your churn rate evolves over the lifetime of a group (cohort) of customers who converted in the same time period (usually a specific month).
🦄 Pro tip!
If your churn is very high in the first or second month, your customer clearly didn’t get to the “aha” moment that shows the value of your product and it’s time to step in with an action plan. Focus on customer success efforts where churn is highest and see if it had an impact and reduced the area of high churn based on later cohorts.