Quick Summary
Churn Rate measures customer attrition - the rate at which customers cancel subscriptions or stop doing business with a company. It is a critical metric for subscription and SaaS businesses.
Churn Rate, also known as attrition rate, is the percentage of customers or subscribers who discontinue their relationship with a company during a given time period. It is a critical metric for subscription-based businesses and directly impacts revenue and growth.
Types of Churn
- Customer Churn: Percentage of customers lost
- Revenue Churn: Percentage of recurring revenue lost
- Voluntary Churn: Customers actively cancel
- Involuntary Churn: Payment failures, account closures
Churn Rate Formula
Customer Churn Rate =
(Customers at Start - Customers at End) / Customers at Start × 100
Revenue Churn Rate =
MRR Lost / MRR at Start × 100
Example Calculation
- Customers at start of month: 1,000
- Customers at end of month: 950
- Customers churned: 50
- Monthly Churn Rate: 50/1000 × 100 = 5%
- Annual Churn Rate (approximate): 5% × 12 = 60%
Industry Benchmarks for Churn
| Industry | Acceptable Monthly Churn | Excellent Monthly Churn |
|---|---|---|
| SaaS (B2B Enterprise) | 1-2% | < 1% |
| SaaS (B2B SMB) | 3-5% | < 2% |
| SaaS (B2C) | 5-10% | < 5% |
| Telecommunications | 2-3% | < 1.5% |
| Media/Entertainment | 10-15% | < 8% |
Negative Churn
Negative churn occurs when expansion revenue from existing customers (upsells, cross-sells) exceeds revenue lost from churned customers. This is the holy grail for SaaS businesses.
- Achieved through successful upselling and cross-selling
- Indicates strong product-market fit
- Companies with negative churn can grow without new customers
Strategies to Reduce Churn
- Onboarding: Ensure customers achieve first value quickly
- Customer Success: Proactive engagement and support
- Product Stickiness: Integrate deeply into customer workflows
- Regular Check-ins: Understand and address concerns early
- Exit Surveys: Learn why customers leave
- Win-back Campaigns: Re-engage churned customers
Key Points
- Percentage of customers lost in a period
- Critical for subscription businesses
- B2B SaaS: < 5% monthly is good
- Revenue churn may differ from customer churn
- Negative churn is highly desirable
- Reducing churn is cheaper than acquiring new customers