Guide · 3 min read ·
How to calculate SaaS churn and what to do about it
Churn is the quiet number that decides whether a subscription business grows or stalls. You can add customers all year and still stand still if the same number leaves the back door. This guide explains how to calculate churn, how to judge your result and which fixes usually work.
What churn means
Churn is the share of customers, or of revenue, that you lose in a period. If you start the month with 200 customers and 10 cancel, your monthly customer churn is 5 percent. Retention is the other side of the same coin: the 95 percent who stayed.
It looks small, which is why it is dangerous. A 5 percent monthly loss feels manageable, but compounded over a year it removes almost half of a customer group.
Customer churn and revenue churn
Customer churn counts the people who leave. Revenue churn counts the recurring revenue you lose, and the two can tell different stories. If your cancelling customers are mostly on your cheapest plan, revenue churn will be lower than customer churn. If your largest accounts leave, revenue churn will be far worse than the headcount suggests.
Track both. Customer churn tells you about satisfaction and fit, while revenue churn tells you about the money. The calculator above works out both when you give it your starting and lost revenue.
Why a monthly rate hides a bigger yearly loss
The calculator also shows churn over a year, compounding your monthly rate. At 2 percent a month you lose roughly a fifth of a customer group in twelve months. At 5 percent you lose around 46 percent. At 8 percent it is over 60 percent. Small monthly differences turn into large yearly ones, so a point or two of improvement is worth real effort.
It also gives you the average customer lifetime, which is one divided by the monthly rate. At 5 percent, the typical customer stays about 20 months. That figure feeds directly into lifetime value.
What a good rate looks like
There is no universal answer. As a rough rule of thumb for small subscription products, around 3 percent a month or less is often seen as healthy, while anything much above 7 percent signals a problem. Business customers on annual contracts churn far less than consumers on monthly plans, and cheap tools tend to churn faster than expensive ones. Compare yourself with similar products, and above all watch your own trend.
Common reasons customers leave
Most cancellations come from a short list of causes.
- They never got set up properly, so they never saw the value.
- The product does not fit their need, which points to a targeting problem.
- A payment failed and nobody followed up.
- They switched to a competitor or built a workaround.
- Their own budget or business changed.
Ways to reduce churn
Start with the first weeks. Customers who reach a first win quickly tend to stay, so improve onboarding and remove steps between signup and value. Next, deal with failed payments, which can be a surprisingly large share of lost customers. Retry the card automatically and send a clear reminder before cancelling anyone.
Offering an annual plan at a discount locks in customers for longer and lifts cash flow. Finally, ask every customer who cancels why. A single question in the cancellation flow, read every week, will teach you more than any dashboard.
Next steps
Churn feeds almost every other metric. Combine it with your revenue figures in the MRR calculator, then feed it into the LTV to CAC calculator to see how much you can afford to spend on winning each customer. If you want fresh customers to replace the ones who leave, claim a tile on CircleSaaS and get discovered by people browsing for tools like yours.