Study up on churn rate basics to set customer and revenue benchmarks

Churn gets a lot of bad press. It is complex and confusing, but it is helpful.

Churn gives you quick feedback in the early stages of building a company. You can run tests on your platform and get feedback in a few days.

In this post, we dive into a topic. We answer a few questions about what is churn. What types are it? How can it be negative?

Then, we look at benchmarking. We analyze data to find out what a good rate is.

Let's dive in, without any further ado.

What is churn?

Churn is an indicator of subscriber health. Churn is the rate at which your business loses customers.

From a high level, you can look at it in two different ways.

1. Customer churn — measures the rate at which customers are leaving your SaaS business
2. Revenue churn — measures the rate at which revenue is leaving your SaaS business

Negative net MRR churn is akin to SaaS nirvana, because with each passing month, your existing subscribers become more and more valuable.

Why look at customer and revenue churn separately?

Customer Churn can be different from revenue Churn. It is good to look at both numbers.

For a total MRR of $100, imagine that you have three customers, A, B and C, and their monthly recurring revenue is $20, $30 and $50.

One day, C will decide to cancel their subscription. As one of three customers churned, the customer Churn rate will be 33%. It will be 50% if you calculate your revenue Churn rate. C made up 50% of the MRR.

Types of revenue churn

Let's take a closer look at revenue Churn. There are two ways to calculate revenue Churn.

1. Gross basis — This is called gross MRR churn because it only takes into account the MRR lost (and not MRR gained) from your existing customers. As a reminder, you lose MRR from your existing customers via both churn and downgrades.
2. Net basis — This is called net MRR churn because you net the MRR lost and gained from your existing subscriber base. So you lose MRR via churn and downgrades, but you also gain MRR via expansion and reactivation. Net MRR churn gives you a more holistic picture of the state of your subscriber base.