Churn rate is the percentage of customers or users who stop using your product within a given time period. For SaaS, it is typically measured monthly and is the inverse of retention.
Churn Rate Explained Simply
Churn rate tells you how fast you are losing customers. If you start the month with 1,000 customers and 50 cancel, your monthly churn rate is 5%.
This compounds dangerously. A 5% monthly churn rate means you lose roughly 46% of customers per year. To grow, new acquisition must outpace this loss.
Churn happens because users do not understand the product (onboarding failure), it does not solve their problem, or they find a better alternative. The most preventable cause is onboarding failure, which is why product tours are powerful anti-churn tools.
Technical Deep Dive
Customer churn = (Customers lost / Customers at start) × 100. Revenue churn measures lost MRR. Net revenue churn accounts for expansion revenue.
To analyze churn, segment by cohort, channel, plan type, and usage level. Build prediction models using login frequency, feature usage depth, and time since last active session.
Best-in-class SaaS companies achieve negative net revenue churn, meaning expansion exceeds losses.
Common Use Cases
- •Board reporting — Track alongside MRR to show business health
- •Churn prediction — Identify at-risk users before they cancel
- •Onboarding evaluation — High early churn signals onboarding problems
- •Pricing strategy — Analyze churn by plan type for product-market fit
- •Customer success prioritization — Focus on high-value at-risk accounts
Frequently Asked Questions
What is a good churn rate for SaaS?
For B2B SaaS, below 2% monthly is healthy. Enterprise typically achieves under 1%. SMB-focused products may see 3-5%. The trend matters most — is it improving?
How does onboarding affect churn rate?
40-60% of free trial users log in once and never return. Effective onboarding with product tours directly reduces this early-stage churn by guiding users to value before they give up.
What is involuntary churn?
Involuntary churn happens when payment fails. It typically accounts for 20-40% of total churn and can be reduced with dunning emails and payment retry logic.
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