What is Churn in SaaS?
“Churn” in SaaS refers to the loss of customers or revenue over a given period. Essentially, it’s the rate at which subscribers cancel or don’t renew their subscriptions. It’s one of the most crucial metrics for any subscription-based business because high churn can stifle or even reverse growth. No matter how many new customers you acquire, if an equal number are leaving, you’re stuck or shrinking.
Churn is the enemy of SaaS because the business model relies on retaining customers over time to recoup acquisition costs and generate profit.
SaaS often spends a lot upfront to acquire a customer (marketing, sales, onboarding), expecting to earn that back via subscription fees over many months/years (this ties into LTV and CAC, next topic). If a customer churns too soon, you lose money on them. If many churn, growth stalls or revenue falls.
How can you calculate churn?
Good question, here’s a simple formula:
Churn is often expressed as a percentage of customers lost in a month or year, or as a percentage of recurring revenue lost. For example, if you had 100 customers at the start of the month and 5 cancel by the end, you have a 5% monthly customer churn rate.
Similarly, if your monthly recurring revenue (MRR) was $50,000 and $2,500 of that MRR was lost due to cancellations/downgrades, that’s a 5% monthly revenue churn.
Types of Churn
There are a few flavors of churn to understand:
- Customer (Logo) Churn: The percentage of customers (accounts) that cancel in a period. E.g., losing 5 out of 100 customers = 5% customer churn.
- Revenue Churn: The percentage of revenue lost due to churn. This accounts for the fact that not all customers are equal (some pay more). E.g., if a big client cancels, revenue churn will be higher than customer churn (since one customer comprised a lot of revenue).
- Gross revenue churn usually considers only lost revenue from cancellations or downgrades.
- Net revenue churn (or net dollar retention) factors in expansion revenue from upsells as well. Net churn could even be negative if your upsells exceed the revenue lost from churn (meaning your existing customers on average are generating more revenue over time despite some leaving).
- Recurring Churn vs. Non-renewal: In annual subscription terms, churn might be measured as non-renewal at the end of the contract term.
- Voluntary vs Involuntary Churn: Voluntary is when a customer actively decides to cancel. Involuntary is when the subscription ends due to something like failed payment and not deliberate cancellation (dunning issues). For SaaS, voluntary churn is the big focus, but involuntary churn needs mitigation too (like sending payment reminders, etc., since it’s essentially accidental churn).
What constitutes a “good” churn rate?
The answer to this question varies by target market:
Enterprise SaaS
Enterprise SaaS (selling to large businesses) tends to have lower churn (because big clients stick around longer, sign multi-year deals, etc.). Annual churn rates in enterprise can be as low as 5-7%. In fact, many enterprise-focused SaaS shoot for <1% churn per month, which annualizes to ~10-12%, but the best are even lower. Some may boast ~5% annual churn (95% retention year over year).
SMB SaaS
SMB SaaS (small business customers) typically sees higher churn. Small businesses are more volatile – they can go out of business or switch tools more often. It’s not uncommon to have 3-5% monthly churn for SMB-focused SaaS, which is ~30-50% annually.
That sounds high, but it’s reality in some markets. Essentially, every year you might lose a third of your small biz customers, requiring constant new acquisition to grow. For very transactional low-cost SaaS or consumer subscriptions, churn can be even higher (monthly churn of 5-10% is possible, meaning many users only stick a few months).
Mid-market
Mid-market is in between. Perhaps 1-2% monthly churn (which is ~10-20% annually).
According to one study (Zuora, cited by Paddle), average annual churn was ~24% for B2B and 31% for B2C SaaS in 2016. That suggests B2C subscription services churn more than B2B. Another source noted an average monthly churn around 5% across SaaS, which is extremely high annually (~46% annual). That might include many small and consumer apps. By contrast, a good benchmark for a mature SaaS targeting businesses is often cited as 5% annual churn (or around 0.4% monthly).
Many experts support that 5-7% annual range as a healthy benchmark for a stable SaaS. This discrepancy shows how wide the range can be depending on your model and stage.
So if you see a number like “5% churn”, context matters: is that per month or per year? A common pitfall is not clarifying that. For early-stage or SMB SaaS, 5% monthly might be the norm. For later-stage or enterprise, 5% annual is the goal.
Customer Stage
Churn is often highest in the early life of a customer (like the first 60-90 days). If you can get a customer to find value and stick past that onboarding phase, they often stay much longer.
This is why onboarding and the first user experience are crucial to address “onboarding churn.” Many SaaS see a chunk of users sign up and then drop off soon after if they don’t quickly reach the “aha moment” or integrate the product into their routine.
For example, a SaaS might notice that if a new user invites 5 team members within the first month, they’re far more likely to become a long-term customer (so the company will focus on that as a key activation metric to reduce early churn).
Why do customers churn?
The reasons vary:
- They didn’t get enough value or ROI from the product (perhaps the product didn’t solve their problem well, or they never fully adopted it).
- Poor customer experience – bugs, downtime, or bad support can drive them away.
- They found a better or cheaper alternative (competition).
- Their budget was cut or priorities changed (especially in B2B, sometimes a champion leaves the company and the replacement cancels, etc.).
- Outgrew the product or, conversely, the product was too advanced for their simpler needs.
- Company went out of business or personal circumstances (for small customers).
- For involuntary churn: credit card expired and not updated, etc.
6 Strategies to Effectively Reduce Churn
It’s a multifaceted effort:
1. Improve onboarding
Ensure customers get set up successfully and see value quickly (time-to-value). Offer training, quick-start guides, perhaps a customer success manager for larger accounts. Many companies implement a “onboarding specialist” or an automated onboarding email sequence, etc.
2. Increase engagement
Often churn happens when users stop using the product. Monitoring usage and proactively reaching out if it drops can save accounts. Show customers features they haven’t tried that might benefit them, send regular value reports or insights that keep them engaged.
3. Customer Success & Support
Having a strong customer success team that checks in, helps customers achieve their goals, and addresses issues can preempt cancellations. A lot of B2B SaaS have CSMs who track account health (using metrics like usage, feature adoption, support tickets, NPS scores) and intervene if health is poor. Good support (fast, helpful responses) prevents frustration that leads to churn.
4. Gather feedback
When customers do churn (or are about to), ask why. Exit surveys or churn interviews can reveal common pain points. Maybe missing features, or pricing issues, etc. Then you can act on that feedback – e.g., if many cite lack of X integration, building that might retain similar customers.
5. Target the right customers (sales/marketing alignment)
Sometimes churn is high because the product is being sold to customers who aren’t a great fit (over-promised, or not the ideal use case). By refining your ideal customer profile and ensuring sales promises align with product reality, you attract customers who truly benefit and thus stick around. “Bad-fit churn” can be reduced by not acquiring those bad-fits in the first place.
6. Offer rescues
If someone is about to cancel (clicking cancel on your site), you might present options: perhaps a discount, or a pause plan, or a conversation with support to solve an issue.
However, that can be tricky – you don’t want to train customers to threaten churn for discounts. But for involuntary churn (failed payments), definitely have a dunning process: multiple attempts, emails to update payment info, maybe a grace period.
That alone can recover a chunk of revenue; many B2C subscriptions lose 1-2% monthly to failed payments if not managed.
Frequently Asked Questions
How do I show customers the value of my SaaS regularly?
Send automated reports or dashboards that highlight key wins. For example, if you run an SEO tool, email users a monthly summary like: “You gained 12 new backlinks and improved 8 keyword rankings.” It reminds them why they’re paying and reinforces ROI without needing manual follow-ups. This small habit keeps value top of mind and gives customers a reason to stick around, especially if the results are tied directly to business growth.
How can community and integrations help reduce churn?
Building a user community makes your SaaS feel like more than just software. Forums, webinars, and user meetups help customers feel connected and swap tips that improve retention. Meanwhile, if your product stores historical data or integrates into key workflows, it becomes harder to leave. You’re not trapping them—it’s just that switching becomes inconvenient when your product is part of their daily rhythm. That’s “stickiness,” and it goes a long way in keeping churn low.
What’s the best way to measure churn trends over time?
Cohort retention analysis is the way to go. Instead of just tracking churn month-to-month, group users by signup date and see how long they stick around. You’ll notice patterns like most churn happening early, or a plateau where long-term users stay put.
That plateau is gold—it tells you which group has found value and will likely stick for years. A flat retention curve after 12 or 18 months is a strong signal of long-term loyalty.
What is “net negative churn” and why is it a good thing?
Net negative churn means your existing customers spend more over time than what you lose from cancellations. Say your upsells and plan expansions bring in more revenue than you lose from people leaving. That’s a great place to be. A company with 110% net revenue retention is growing even without adding new customers. It shows your SaaS isn’t just sticky—it’s expanding inside customer accounts, which increases LTV and takes pressure off your CAC.
How does churn differ between B2B and B2C SaaS?
B2C SaaS often deals with higher churn due to lower commitment and shorter usage lifecycles, but it’s usually offset by large user volumes and lower CAC. B2B churn tends to be lower, but every lost customer hits harder. B2B also has tools like invoicing and customer success to reduce churn. Involuntary churn (like failed payments) is more common in B2C. Either way, the lesson is the same—low churn keeps growth sustainable and compounding.
