Churn Rate

The percentage of subscriptions that don't get renewed each following month.

Definition

The churn rate is one of the most important metrics of any subscription business like SaaS. It indicates how long you are able to keep your customer after he buys for the first time.

A low churn rate indicates that the product is well done, solves the problem of the customers and is targeted to the right customers segment.

You should always track your churn rate and try to optimize it as much as possible.
To calculate the churn rate you have to get the percentage of cancelled subscription over the total number of subscriptions at the start of the month (Sturppy can help you with that).

The churn rate is usually calculated monthly and should be looked at as an average of the last couple of months since it can fluctuate significantly with not enough data.

Types of churn

The are two types of churn:

  • Customer churn: the number of customers that have been lost in a month.
  • Revenue churn: the revenue that has been lost in a month. This is customer churn * revenue per customer.

It can happen that the revenue churn is negative. This is when the revenue that is lost from customers churning is less than the revenue that is gained by customers upgrading to an higher plan.

How to estimante

Estimating churn rate can be very hard for new startups that need to plan or are just starting out. In this case the churn rate is usually higher since you still have to find product-market fit.

As always Google is your best friend, so you should search for your sector what the average churn rate is. As an example, SaaS businesses have an average 5% churn rate and a very good churn rate would be considered 3%, but these numbers can vary greatly from startups to startups.