What is Churn Rate?
Subscription or SaaS businesses make more money because customers pay over and over after you sign them up one time. If you lose customers as fast as you gain them, you miss out on customers paying over and over again.
Your churn rate measures this and tells you how many customers or how much revenue you lose each month from customers you signed up in the past.
How do you Calculate Churn Rate?
Churn rate is calculated by adding up how many customers you lost last month compared to how many customers you started the month with.
If you started the month with 100 customers, and lost 10 during the month, the calculation would be:
10/100= 10% churn.
What is Revenue Churn Rate Compared to Customer or Logo Churn Rate?
Revenue churn rate is useful when you have customers that pay very different amounts every month. If you have 10 customers, 9 that pay $10/mo and one that pays $1,000 per month, you can afford to lose a $10/mo customer but loosing the 1 customer paying $1k/mo is devastating.
Logo churn rate (customer churn) would be 1/10 or 10%. You add up the total customer count, ignoring what they pay each month.
Revenue churn rate assuming it was the $1k/mo customer that cancelled would be $1000/$1090 or 92% churn. You add up the total revenue, ignoring how many customers make up the total revenue.
10% logo churn versus 92% revenue churn tells two very different stories. Calculate both if you have many different pricing plans where customers pay different amounts each month.
What’s an Acceptable Churn Rate?
Churn can be correlated to many things but its most closely correlated to price point, so it’s important to do a churn analysis. If you’re selling cheap $100/yr plans to small businesses, your churn rate will be higher than a company selling $250k/yr plans to the Fortune 500.
Is My Churn High or Low?
Is My Churn High or Low?I think about churn in buckets related to price point, revenue stage of the company, and funded vs. bootstrapped.
- <$100/yr price point, revenue churn up to 30% annually is acceptable, under 5% annually would be world class. Avg is 40% as seen below.
- $100-$10k/yr price point, revenue churn up to 20% annually is acceptable, under 3% would be world class. Avg is 38%.
- $10k-$100k/yr price point, revenue churn up to 10% annually is acceptable, under 1% would be world class. Avg is 17%
- $100k+/yr price point, revenue churn up to 5% annually is acceptable, under 1% would be world class. Avg is 19%.
As You Increase Your Price Point, Churn Should Decrease
1424 private B2B SaaS companies and their gross revenue churn annually. Anyone to the right of the 100% line is churning 100% of their revenue every year – not good. Top performers are dots all the way to the left.
This is all before adding back expansion revenue (how much revenue you add from upselling existing customers). In a healthy company this upselling would more than cover the hole created by churn.
Churn Rate Examples from SaaS Companies
So you get an understanding of different churn profiles, here are a couple real life examples pulled out of this data set.
Notice Omnisend has highest churn with lowest ACV. Looker was acquired for $2b+ with under 10% churn and 35% expansion.
Last, if you’re looking for strategies to manage your churn, have a read of our churn management guide.
