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, but the sheer number of acronyms can be overwhelming. In this six-part series on key SaaS metrics, we’ll walk you through the most common—and helpful—metrics you need to know to successfully run and grow your SaaS business.
SaaS businesses rely heavily on gaining and keeping their customers to grow their recurring revenue stream. An important metric when analyzing how effectively you’re keeping your customers happy and coming back each month is the 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 metrics can help startups establish product-market fit.
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 analyzing a business with a high customer churn rate, it’s important to understand why customers are leaving. This will help you take measures to stem the flow as quickly as possible. It’s inevitable for some customers to leave now and again, but it’s important to make sure you’re looking at the trends that reveal sustainability.
Want More SaaS Metrics?
This guide explains the core metrics used to measure SaaS company success. Using simple examples, we’ll show you how to calculate each metric, and describe why specific indicators are important to investors.