What Is SaaS Churn?

SaaS churn is the percentage of customers or recurring revenue that a SaaS (Software-as-a-Service) business is losing over a time span. The loss of customers can happen when, for example, they cancel the SaaS service, do not renew it, or their subscriptions drop in value.

Churn in SaaS can be easily defined as the measure of how much a recurring business is losing its subscribers or its recurring revenue. To put it another way, churn is an indicator that you lose a lot of your customers or your recurring revenue every year if the business you have does not improve or get a lot bigger. SaaS businesses that track churn learn valuable lessons that are crucial about retaining their customers, their steady cash flow, and whether their growth is sustainable or not.

How Is SaaS Churn Calculated?

The basic customer churn rate can be calculated as:

Customer Churn Rate = Customers Lost During the Period ÷ Customers at the Beginning of the Period × 100

For example, if a SaaS company starts the month with 500 customers and 25 cancel their subscriptions, its monthly customer churn rate is 5%.

Businesses may also track revenue churn, which measures the recurring revenue lost during a period rather than the number of customers lost.

Why Does Churn in SaaS Matter?

A high customer turnover in a SaaS business can cause a lot of difficulties in achieving sustained growth. The reason is that even if the company continues to sign up new customers, losing a huge number of customers might wipe out these gains and also lead to a reduction in the company’s recurring income.

SaaS businesses generally observe the churn rate plus their main customer metrics like customer lifetime value, customer acquisition cost, monthly recurring revenue, and retention rates of the company. They use various tools that enable them to analyse different metrics simultaneously to see trends, opportunities and identify areas where they might be falling short. This can, in turn, help a business understand and manage itself better.

What Causes SaaS Churn?

Common causes can include:

Poor customer experience: Customers may leave when support or service quality falls short.

Product limitations: The product may no longer meet changing customer needs.

Pricing concerns: Customers may perceive the subscription as too expensive.

Low product engagement: Customers who do not regularly use a product may be more likely to cancel.

Strong competition: Alternative products may offer better features, pricing, or value.

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