Churn Rate
Definition
Churn rate is the percentage of customers who stop using a company's product or service over a specific period, typically measured monthly or annually.
Explanation
Churn rate is a critical metric for subscription-based businesses. A high churn rate indicates customer dissatisfaction or lack of product-market fit, while low churn signals strong customer retention. Reducing churn by even a few percentage points can significantly impact revenue growth.
Churn is calculated by dividing the number of customers lost during a period by the total number of customers at the start of the period. Monthly churn rates of 3-5% are typical for SaaS, while best-in-class companies achieve under 1%.
Example
A SaaS company starts the month with 1,000 customers and loses 50, resulting in a monthly churn rate of 5%.