Are you in the SaaS business and concerned about customer retention and revenue growth? Do you use metrics to guide you in making the appropriate business decisions? Let’s consider the SaaS Churn Rate and What You Need to Know to help you succeed in this competitive SaaS market.
The loss of customers or ‘churn’, otherwise known as “Logo Churn” is as telling a number as is actual revenue generated for the period when it comes to determining the financial health and well-being of your company. As a SaaS entrepreneur, it is important to understand not only the rate at which customers are subscribing to your services, or in other words, new customers, but also the rate at which they are unsubscribing or not renewing their services. This customer turnover could equate to customers not satisfied with the software product in its current version. Retention is key to future growth and the success of your company and understanding the reasons WHY customers may be leaving could be the pivotal point in your future success. In order to ensure retention, customers must continue to see the value in your offerings and services and if they are not renewing, this value may be lost.
Although you may be experiencing tremendous growth in customer acquisition and therefore, revenue, if you are losing customers at a high rate, you may in fact be losing revenue each period. The real test of success is in realizing the lowest possible churn rate, or loss of customers. In reality, the number of new customers must always be greater than the number of lost customers for the period in order to continue growing, but reducing the churn will ensure future success.
Now that you understand the importance of churn rate and how it impacts your business, let’s look at two ways of modeling it:
Churn Rate – using the churn rate is a simple method of calculating your customer loss for the period. It is easily understandable and requires little input, yet its impact is a critical metric in your business decision making.