What is CHURN?
Find out more about why churn is a critical KPI in the SaaS industry and get to know the difference between Revenue Churn & Logo Churn. You will find valuable information about the Churn Rate in SaaS businesses.
Churn is a critical metric for SaaS companies that refers to the rate at which customers discontinue their subscription or stop using a product or service. In other words, churn represents the percentage of customers who have canceled their subscription or stopped using a product within a certain period.
High churn rates can be a significant challenge for SaaS businesses because they directly impact revenue growth and customer retention. For example, if a company has a churn rate of 10%, it means that 10% of its customers have stopped using the product or canceled their subscription within a given period.
Reducing churn is essential for SaaS companies because it is typically more expensive to acquire new customers than it is to retain existing ones. Therefore, SaaS managers should focus on reducing churn rates by improving product features, enhancing customer support, offering attractive pricing plans, and providing a better overall customer experience.
Measuring churn can also provide valuable insights into the company’s customer base, including which customer segments are most likely to churn and why. This information can help managers develop strategies to retain these customers and prevent future churn.
To calculate churn, SaaS companies typically divide the number of customers who have canceled their subscription or stopped using the product within a given period by the total number of customers at the beginning of that period. The resulting percentage represents the churn rate for that period.
REVENUE Churn vs. LOGO Churn
Revenue churn and logo churn are two different key metrics used to measure the amount of customers and revenue a SaaS business lost
Revenue churn measures the loss of revenue from existing customers who have downgraded their subscription or stopped using the product altogether. Revenue churn is calculated by taking the total amount of revenue lost from existing customers during a specific period. If you divide that number by the total revenue at the beginning of that period you will get the revenue churn rate.
Logo churn, on the other hand, measures the number of customers who have canceled their subscription or stopped using the product altogether, regardless of the revenue impact. Logo churn rate is calculated by dividing the number of customers lost during a specific period by the total number of customers at the beginning of that period.
The main difference between revenue churn and logo churn is that revenue churn takes into account the revenue impact of lost customers, while logo churn only focuses on the number of customers lost. This means that revenue churn can provide a more accurate picture of the impact of churn on a company’s revenue, while logo churn can provide insight into the overall health of a customer base.
Both metrics are important for SaaS businesses to track and analyze, as they can provide valuable insights into customer retention and revenue growth. By tracking both revenue churn and logo churn, SaaS companies can better understand the reasons why customers are leaving and develop strategies to reduce churn and retain existing customers.
Churn RATE
The churn rate is a key metric used by SaaS companies to measure the rate at which customers are canceling their subscription or no longer using the product. It is expressed as a percentage of the total number of customers that have churned during a specific period, usually monthly or annually.
To calculate the logo churn rate, SaaS companies take the number of customers who have churned during a specific period and divide it by the total number of customers at the beginning of that period. The resulting percentage represents the churn rate for that period.
For example:
If a company had 1,000 customers at the beginning of the month and 50 customers canceled their subscription during that month, the churn rate would be 5% for that month.
To calculate the revenue churn rate, SaaS businesses take the amount of revenue of customers who have stopped or downgraded their subscription and divide it by the total amount of revenue of the existing customers at the beginning of that period.
For example:
If a company had 20M USD revenue at the beginning of the month and 50 customers canceled their subscription during that month. This results in a revenue loss of 500K USD. This means the churn rate would be 2,5% for that month by dividing 500.000 through 20.000.000.
Tracking the churn rate is critical for SaaS companies, as it provides insights into the health of the customer base and helps identify areas for improvement in customer retention. Companies with high churn rates may need to improve their product, customer support, or pricing strategies to retain customers and reduce churn.