SaaS Glossary

Basic defenitions of acronyms commonly used in product management and sales organizations, and Software-as-a-Service industry

Churn Rate

Customer Churn

Customer Churn Rate is one of the most important SaaS metrics. It indicates how many net new customers you added. It's calculated either as a number or a percentage of the total number of lost customers during a specific period.
Rarely it's also called attrition rate.

Customer Churn Rate = (# of Customer at the beginning of the month - #Customer at the end of the month) / Customer at the beginning of the month
(3000-2760)/3000 = 240/3000 = 0.08 = 8%

Revenue Churn

To determine the percentage of revenue that has churned, take all your monthly recurring revenue (MRR) at the beginning of the month and divide it by the monthly recurring revenue you lost that month minus any upgrades or additional revenue from existing customers. Just like for customer churn, new sales in the month don’t count toward revenue churn as you are looking for how much total revenue you lost. New revenue from existing customers is revenue you have gained.

For example, if Company ADG had $500,000 MRR at the beginning of the month, $450,000 MRR at the end of the month, and $65,000 MRR in upgrades that month from existing customers, its revenue churn rate would be:

Revenue Churn Rate = [(MRR beginning of month - MRR end of month) - MRR in upgrades during month] / MRR beginning of month

(($500,000 – $450,000) – $65,000)/$500,000 =

($50,000 – $65,000)/$500,000 =

(-$15,000)/$500,000 = -3%

Note the negative revenue churn rate means you actually gained revenue that month!

As before you can choose a different time frame, such as quarterly or annual. Just remember that if you do, you’ll need to look at quarterly or annual recurring revenue, not monthly. Also, as the example pointed out, a major benefit to calculating revenue churn is that it’s possible to include upgrade revenue.

Now that you understand the basics of calculating customer churn and revenue churn, let’s dig a little deeper.

Customer Churn ≠ Revenue Churn

The first thing to point out is that customer churn and revenue churn are not always the same.

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