Churn Definition for SaaS
Next to MRR, Churn is probably the most widely discussed subscription metric. Churn has no actual agreed-upon definition. In the end, you define churn in a way that works for your business and in a way that is defensible.
While there are many variations of churn, churn is always a measure of attrition or losses - customers, contracts, revenue, contract value, or bookings.
You will see Churn expressed as a rate or ratio, or discussed as a whole number.
Most Popular Churn Uses and Definitions
Churn metric expressed as a ratio or rate
Churn is the inverse of your renewal rate, an 80% renewal rate is the same as a 20% churn rate Churn is typically calculated on renewal bookings and renewal counts.
Churn metric expressed as an aggregate of lost contract value
Churn is also frequently expressed as the lost subscription value of customers that have not renewed.
Churn metric expressed as a as lost revenue
A frequent use of Churn is revenue churn, popularized by Bessemer Ventures in their white paper on measuring growth in subscription businesses.
Take a look at some examples of churn measurements.
Uses of Churn?
A single churn number is good for chats with analysts, reporters, peers and other important but non-operational discussions. To optimize pricing, product planning, packaging, marketing and other decisions to maximize revenues and business performance, use a variety of more sophisticated churn numbers help you understand your true performance over time.
Define clear terms for your various churn metrics and then measure them consistently from period to period. Again, this requires well-defined and agreed to definitions and formulas for churn measurement. Look for potentially dramatic different churn numbers by dimension such as these
- Churn - by marketing campaign
- Churn - by promotion
- Churn - by product
- Churn - by length of sales cycle
- Churn - by functional usage
- Churn - by licensed modules
- Churn - by sales channel or organization
- Churn - by industry or market segment
- Churn - by customer size
- Churn - by total customer revenue or contract size
In addition to measuring churn by dimensions as above, you can measure churn by relative term number. Many subscription and SaaS companies experience a range of distinct Life Cycle Renewal Rate curves.
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