Since churn metrics indicate lost customers, ARR, MRR, contracts, and contract values, they are the most extensively tracked and discussed SaaS and subscription KPIs. Logo churn and revenue churn are two other ways churn may be described; rates and ratios ("12% churn rate") are the most common.
Churn can also refer to the loss of a company's logo or a significant number of its customers. Two customers left, for instance.
Revenue churn refers to the regular income that is not renewed, such as subscriptions and contracts. To illustrate, let's say that you heard, "We churned $12,000 in annual recurring revenue."
Churn is defined by SaaS and other subscription organisations using principles that are acceptable to stakeholders and potential stakeholders.
For a SaaS to thrive, its growth rate (i.e. new signups) must outpace its attrition rate (cancelled subscribers).
Churn rates are a significant statistic in revenue and growth forecasts since they are a key historical gauge of performance. In terms of forecasting, SaaS churn is defined as the probability of customers cancelling their memberships.
There are several methods for calculating SaaS churn because determining a churn metric that effectively represents a company's turnover and growth over a specific time period can take time and effort.
When expressed as a percentage, churn is the inverse of your renewal rate. A renewal rate of 80% is similar to a churn rate of 20%.
The following method is the simplest approach to computing the SaaS customer churn rate formula over a specific time period:
Churn / Customers₁
Customers₁ represent the customers you had on the initial day of the term, and customers2 represent the customers you had on the last day of the period. This formula returns the number of customers who have churned since the beginning.
The problem with this method of determining the SaaS churn rate is that it may mislead your company's stats if you are experiencing rapid growth. This higher number would cause your company's churn rate to decrease even though more customers are leaving your product than previously.
As a result, an adjusted churn rate accounts for some organisations' rapid development. Businesses are able to obtain a more transparent metric of customer attrition by using the number of customers at the midpoint of the month rather than the number of existing customers at the beginning of the month. This allows for the measurement of customer retention.
(churn / (customers₁ + customersₙ) / 2)
Add a bit of predictive spin to your churn rate calculations if you wish to refine your churn rate estimations:
The sum of inactive customers on a given day i+n / the total sum of active customers on a given day i+n.
i=1nInactiveᵢ / i = 1nCustomersᵢ