Sage-Tips

What does churn mean in SaaS?

Subscribe to Revenue Delivered Monthly insights for sustainable growth in SaaS. All SaaS businesses share a common enemy: churn. Defined as the percentage of customers that cancel their subscriptions in any given time period, churn rate is an essential metric that can make, or break, the success of your SaaS business.

What does churn mean in software?

Code churn is when an engineer rewrites their own code in a short period of time. Think of it as writing a postcard and then tearing it up and writing it again, and then again.

Is churn and attrition the same?

The churn rate, also known as the rate of attrition or customer churn, is the rate at which customers stop doing business with an entity. It is most commonly expressed as the percentage of service subscribers who discontinue their subscriptions within a given time period.

What are the different types of churn?

Some people simplify all of this into just two types of churn: Involuntary (circumstances entirely outside of their control lead to churn), and voluntary churn (when they actively decide to leave).

Why is churn important in SaaS?

Churn is an important metric to measure in your SaaS business. It helps to determine if there is a problem with your product and is related to your businesses valuation. To properly assess your business’ churn you must consider both customer numbers and the MRR.

Is churn good or bad?

While an increase in churn following rapid growth isn’t good, it does tell you that your growth is hurting the other parts of your business, like support and customer success. Bringing in customers at a rapid pace is only worthwhile if you have systems in place to retain those customers at the same rate.

What is a good SaaS customer retention rate?

For SaaS companies selling into small and medium businesses (SMBs), a good Net Retention Rate is 90\%. For Enterprise SaaS, 125\% is considered a good Net Retention Rate.

What is customer churn in Saas?

Customer churn is also referred to as attrition and is the rate at which customers stop spending with your SaaS company. Revenue churn is the loss in revenue. This could be because a customer canceled a contract or spent less with your SaaS company in a given amount of time.

What is the difference between customer cancellation and churn?

While the two terms are often used interchangeably, cancellation and churn represent two unique decision points on your customer’s journey. Remember this: A customer who cancels won’t always churn. You have an opportunity to prevent churn, even after your customer has canceled.

Why is my churn rate so high in my contracts?

Renewal rates are not always straightforward due to different sizes in contracts, so this can affect the churn rate.

How do SaaS companies determine renewal rate?

One factor a SaaS company could look at would be how many customers renewed their monthly or yearly service compared to those who canceled. Another way to look at the renewal rate would be through the revenue rate or difference in revenue between the past contract and the new contract for your service.