As a SaaS entrepreneur, there are countless numbers, statistics, and metrics that you need to track and calculate to assess the health of your business—the number of acronyms alone can be overwhelming!
We're just going to focus on one. It's a common—and helpful—metric you need to know to successfully run and grow your business.
Because of its subscription-based pricing model, your SaaS business relies heavily on gaining and keeping customers to grow a recurring revenue stream. How do you know if you’re keeping your customers happy and if you're continuing to meet their needs?
Look at your customer churn rate (CCR).
What is customer churn rate?
The customer churn rate is the percentage of customers that cancel their subscriptions in a given time period. This important SaaS metric can help startups establish product-market fit.
Related Reading: How to Prove Product-Market Fit Using SaaS Metrics
How to Calculate Customer Churn Rate
The basic formula for the customer churn rate is as follows:
Customer Churn Rate =
Number of preexisting customers who left during a given period
Total customers at the start of that period
For example, if your company had 50 customers at the beginning of the month and during that month 12 customers left, you would have a monthly customer churn rate of 24%.
12 ÷ 50 = 0.24
Mathematically, this means churn is the inverse of customer retention.
It’s worth noting that this ratio doesn’t account for the gross customer accounts at the end of the period, or the value you’re getting from each of the lost customers.
Ideally, a company’s customer churn rate would be well under 10%, but this figure can vary depending on industry competition and how mature your product or service is.
If you’re seeing a high customer churn rate, it’s important to try to understand why customers are leaving. This will help you take appropriate action to stop the bleeding as quickly as possible.
It’s inevitable for some customers to leave now and again, so there will be churn! Also don't neglect looking for the positives in your analysis, like trends that reveal strategies for sustainability.
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