If you’re new to SaaS, you’ve probably heard the word “churn” tossed around in articles, investor decks, or team meetings. At first, it sounds like complex business jargon, but churn is actually very simple: it’s the measure of how many customers stop using your product over a period of time.
For SaaS businesses, churn is one of the most important metrics to watch. It’s like checking your heartbeat – too high, and your company’s health is at risk. In this guide, we’ll cover what churn is, why it matters, how to calculate it, benchmarks to compare against, common reasons customers leave, and strategies to keep churn under control.
What is SaaS Churn?
In SaaS, churn refers to the percentage of customers or revenue lost during a specific period (monthly or yearly).
Example:
- Start the month with 200 paying customers.
- 10 cancel before the month ends.
- Churn = (10 ÷ 200) × 100 = 5% monthly churn.
It’s as simple as that. Churn tracks how many customers you’re losing.
Why Churn Rate Matters in SaaS
SaaS companies depend on recurring revenue. If churn is high, growth slows down or even reverses, no matter how many new customers you acquire.
- High churn = Customers don’t see enough value → revenue falls.
- Low churn = Customers are satisfied → revenue compounds over time.
Investors, founders, and product teams all watch churn closely because it shows how sticky (or fragile) a SaaS product really is.
Types of Churn in SaaS
1. Customer Churn
This measures how many customers cancel their subscription entirely. Example: if 5 customers out of 100 cancel, that’s 5% customer churn.
2. Revenue Churn
Sometimes customers stay but spend less — for example, downgrading from $200/month to $50/month. You still keep the customer, but you’ve lost $150 in monthly recurring revenue. That’s revenue churn.
3. Gross vs. Net Churn
- Gross churn = Total revenue lost.
- Net churn = Revenue lost minus any upgrades or upsells from other customers.
SaaS Churn Benchmarks: What’s Considered Good?
Churn rates vary by industry, product type, and target market, but here are general benchmarks:
- SMB-focused SaaS: 3–7% monthly churn is common.
- Enterprise SaaS: 1–3% monthly churn is healthier, since contracts are bigger.
- Annual churn: Best-in-class SaaS companies aim for under 8% yearly churn.
Put simply: the lower the churn, the stronger your SaaS business looks to customers and investors.
Why Customers Churn (Common Reasons)
Understanding why people leave is the first step to fixing churn. Here are the top causes:
- Poor onboarding – Customers don’t understand how to use the product effectively.
- Lack of product-market fit – The product doesn’t solve their problem well enough.
- Pricing issues – Too expensive compared to alternatives.
- Weak customer support – Issues go unresolved, leading to frustration.
- Competition – Customers switch to tools with better features or UX.
- Company changes – Mergers, new strategies, or budget cuts on the client side.
How to Calculate and Track Churn
Formula for Customer Churn
Churn Rate = (Customers lost during period ÷ Customers at start of period) × 100
Example:
- Start with 500 customers.
- Lose 20 by end of month.
- Churn = (20 ÷ 500) × 100 = 4% monthly churn.
Formula for Revenue Churn
Revenue Churn Rate = (MRR lost during period ÷ MRR at start of period) × 100
Example:
- Start with $50,000 MRR.
- Lose $2,000 in downgrades and cancellations.
- Revenue churn = (2,000 ÷ 50,000) × 100 = 4% monthly revenue churn.
Strategies to Reduce Churn
1. Improve Onboarding
Customers who see value quickly are less likely to leave. Offer walkthroughs, videos, or in-app guides.
2. Provide Excellent Customer Support
Fast responses and proactive support reduce frustration.
3. Build a Customer Success Team
Customer Success focuses on helping clients achieve outcomes, not just fixing problems.
4. Gather Feedback and Act On It
Exit surveys, NPS scores, and direct interviews can reveal why customers are leaving.
5. Keep Improving Your Product
Regular updates, new features, and bug fixes show customers that your SaaS is alive and evolving.
Advanced SaaS Metrics Related to Churn
- NRR (Net Revenue Retention): Measures how much recurring revenue you retain (and grow) from existing customers.
- CLV (Customer Lifetime Value): Total revenue expected from a customer over their time with you.
- CCR (Customer Count Retention): Similar to churn, but focused on customer numbers instead of revenue.
These advanced metrics give SaaS founders and investors a complete picture of customer health and revenue predictability.
Final Thoughts
Churn might sound like a scary word, but at its core, it’s just a measurement of customers leaving. For SaaS companies, keeping churn low is critical to long-term growth.
Remember:
- Churn = lost customers.
- The lower your churn, the stronger your SaaS.
- Happy customers = healthy revenue.
If you’re just starting out, keep an eye on churn early, understand why customers leave, and make reducing churn part of your product strategy.
What is a good churn rate in SaaS?
For many SaaS companies, under 5% monthly churn is solid. Enterprise SaaS often aims for 1–3% monthly, while best-in-class companies target less than 8% annually.
Is churn always bad?
Some churn is natural, no product retains 100% forever. The goal is to keep it low enough that growth continues.
How do you calculate churn rate?
Churn rate = (Customers lost during period ÷ Customers at start of period) × 100.
What’s the difference between churn and retention?
Churn measures customers leaving; retention measures customers staying. They are two sides of the same coin.
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