Churn Rate
Churn rate is the percentage of customers who cancel their subscription in a given period. It's the silent killer of SaaS businesses—you can't grow faster than you're losing customers.
What is Churn Rate? How to Calculate and Reduce Churn
Calculate monthly churn: (Customers lost this month / Customers at start of month) × 100. If you start January with 1,000 customers and lose 50, your monthly churn is 5%.
Why churn matters more than growth: A 5% monthly churn rate means you lose half your customers every year. Even with 10% monthly growth, you're on a treadmill. The math is brutal: at 10% monthly churn, you lose 72% of customers annually. You need massive acquisition just to stand still.
Acceptable churn benchmarks: Consumer SaaS: 5-7% monthly is normal. B2B SaaS: 0.5-1% monthly for SMBs, 0.2-0.5% for enterprise. If you're above these, you don't have product-market fit yet—fix retention before scaling acquisition.
Two types of churn: (1) Customer churn—percentage of customers who cancel, (2) Revenue churn—percentage of MRR lost (better metric because it weights by customer value). A $10/month customer churning hurts less than a $500/month customer.
Negative churn: When expansion revenue from existing customers exceeds revenue lost to churn. This is the holy grail—you grow even if you stop acquiring new customers. Example: Start with $100k MRR, lose $5k to churn, gain $8k from upsells = $103k MRR (negative 3% churn).
How to reduce churn: (1) Nail onboarding—most churn happens in first 30 days, (2) Deliver quick wins—show value before the first billing cycle, (3) Monitor usage—reach out before they disengage, (4) Exit interviews—ask why they're leaving (you'll find patterns).
Examples
Netflix has ~2% monthly churn in the US. Spotify is ~5%. Enterprise tools like Salesforce are under 1%. If you're consumer SaaS above 7%, focus on retention before growth.