Churn gets a lot of bad press. Yes, it is complex and confusing, but as a metric, it is helpful.
In the early stages of building a company, churn gives you quick feedback, which other metrics seldom do. Studying churn lets you run tests on your platform and get feedback in a few days or months.
In this post, we dive deep into churn. First, we answer a few key questions: What is churn? What are its different types? And how can it be negative?
Then, we dive into churn benchmarks. We analyze anonymized and aggregated data to answer the question: What is a good churn rate?
So without any further ado, let’s dive in.
Churn is an indicator of the health of your existing subscriber base. In simple terms, churn is the rate at which your SaaS business loses customers or revenue.
From a high level, you can look at churn in two ways:
Negative net MRR churn is akin to SaaS nirvana, because with each passing month, your existing subscribers become more and more valuable.
Depending on the revenue concentration, customer churn can be different from revenue churn. Hence, it’s good to look at both numbers.
For example, imagine you’re running a SaaS business with three customers: A, B and C. Their monthly recurring revenue (MRR) is $20, $30 and $50, respectively (for a total MRR of $100).
Now, one day, C decides to cancel their subscription and churn. So when you calculate your customer churn rate for the month, it will be 33% (as one of three customers churned). But if you calculate your revenue churn rate, it will be 50%. This is because C made up 50% of your MRR.
Let’s dig a little deeper into revenue churn. You can calculate revenue churn in two different ways: