What is churn in SaaS?

Churn, also known as customer or user churn, refers to the rate at which customers or subscribers of a software-as-a-service (SaaS) company stop using its products or services over a given period of time. In other words, churn is the percentage of customers who cancel their subscription, opt-out of the service, or do not renew their contracts.

Churn is a critical metric for SaaS companies, as it can have a significant impact on their revenue growth and sustainability. High churn rates indicate that customers are dissatisfied with the service and may not renew their subscriptions, leading to lost revenue and potential negative reviews that can damage the company’s reputation. On the other hand, low churn rates suggest that customers are satisfied with the service and are likely to continue using it, resulting in predictable revenue streams and better customer lifetime value.

To calculate churn, SaaS companies divide the number of customers who cancel their subscriptions during a given period by the total number of customers they had at the beginning of that period. The resulting percentage is the churn rate. For instance, if a SaaS company had 1,000 customers at the start of a month and lost 50 of them during that month, the churn rate for that month would be 5%.

Reducing churn is critical for SaaS companies to achieve sustainable growth and profitability. To do so, companies need to identify the reasons why customers are leaving and take corrective action. For example, companies may need to improve their product features or user experience, provide better customer support, or offer more value-added services. By addressing the root causes of churn, SaaS companies can improve customer satisfaction, increase retention rates, and achieve long-term success.