What is churn?
Churn is the rate at which a business is losing customers and/or revenue through subscription cancellations. There are two main types of churn:
- Customer churn — measures the rate at which customers are leaving your SaaS business
- Revenue churn — measures the rate at which revenue is leaving your SaaS business
For a guide to customer churn, go here. Keep reading to dig deeper into revenue churn and its types. You can calculate revenue churn in two different ways:
Gross revenue churn rate
The gross revenue churn rate (or gross MRR churn rate) charts the percentage of recurring revenue lost due to contraction and churn over time. It takes into account the MRR lost and not the MRR gained from your existing customers.
To calculate gross revenue churn, sum up your churn and contraction MRR and divide it by MRR at the start of the same period.
Gross MRR Churn Rate = (SUM of Churn & Contraction MRR) / (MRR at start of period)
Example
At the start of the month, you have $100 in MRR. During the month, your net churn is $10 and your net contraction is $10. Your gross MRR churn rate is 20% since ($10 + $10) / $100 is 20%.
Only looking at the gross revenue churn rate can be limiting since it doesn't take into account expansion and reactivation.
Tracking gross revenue churn (or gross MRR churn rate) gives you a more realistic picture of how much revenue you are losing without sugar-coating the numbers. The Gross MRR churn rate number will always be higher than the net number and, by definition, can’t be a negative value.
Sam Jacobs, Founder and CEO at Pavilion In the world of Growth at Any Cost (GAAC), the #1 KPI everybody obsessed over was new business growth. But in 2024, the KPI that's going to enable your long-term growth is retention. It's not your ability to attract a new customer that matters most, but keeping them over a sustained period of time.
Net revenue churn rate
Net revenue churn rate (or net MRR churn rate) considers the MRR lost and gained from your existing subscriber base. You lose MRR via churn and downgrades but also gain MRR via expansion and reactivation. Net revenue churn gives you a more holistic picture of the state of your existing subscriber base.
To calculate your net churn rate, take your churn and contraction MRR subtracted by expansion and reactivation revenue and divide it by your MRR at the start of the period.
Example
At the start of the month, you have $100 in MRR. During the month, you lose $10 to churn and $10 to contraction, while one customer increases their MRR by $10. Your net MRR churn rate is 10%: (($10 + $10) − ($10 + $0)) ÷ $100.
Breaking monthly recurring revenue into its component parts gives useful insight into your business's revenue flow, both inbound and outbound. MRR can be broken down into five movements: New Business, Expansion, Contraction, Churn, and Reactivation.
Can churn be negative?
Negative churn is considered the Holy Grail of SaaS growth and a symbol of a very strong product and a business model that supports it. It occurs when the amount of new revenue added from the existing customer base (through expansions and reactivations) during a specific period is larger than the amount lost from cancellations and contractions during that same period. We can infer two things from reviewing the churn formulas:
By definition, Gross MRR churn is always higher than Net MRR Churn
This is because Gross MRR churn only takes into account the MRR lost, while Net MRR churn also takes into account MRR gained.
Net revenue churn can be negative
If the monthly recurring revenue (MRR) gained from existing customers (Expansion + Reactivation) exceeds the MRR lost (Churn + Contraction), your net MRR churn rate will be negative. Negative net revenue churn is akin to SaaS nirvana. This is because with each passing month, your existing subscribers become more and more valuable. In a sense, your business can grow organically as you don’t need to spend any money on acquiring new customers.
40% of SaaS businesses with ARR in the $15-30m range have negative churn.
Churn is high in the initial stages. As you scale and hone in on your ICP, churn decreases.
How can your business achieve negative churn?
By building an expansion loop within it. This is the only sustainable way to get to negative churn. No matter what you do, customers are always going to churn. Your job is to grow revenue from those who stay.
Subscribe to The SaaS Roundup
Something went wrong.
We have sent you a confirmation email!
What is a good monthly churn rate?
Churn benchmarks by ARR range
The monthly net and gross MRR churn rate of a median company is higher in the initial stages of the business. As companies find product-market fit and hone into their customer category, churn reduces. A median early-stage SaaS company has a 6.2% net MRR churn rate and a 4.1% gross MRR churn rate. A median company over $1M ARR has a 2.3% net MRR churn rate and a 5.3% gross MRR churn rate. Meanwhile, a median company over $15M ARR has a 1.8% net MRR churn rate and a 5.8% gross MRR churn rate.
| New MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 0.2% | -0.4% | -1.2% | -0.8% | -0.8% | -1.1% |
| Good / Top quartile | 2.4% | 0.8% | 0.3% | 0.2% | -0.1% | -0.4% |
| Ok / Median | 6.2% | 3.1% | 2.3% | 1.6% | 1.4% | 1.8% |
| Can be better / Bottom quartile | 12.3% | 6.7% | 5.5% | 4.1% | 3.1% | 5.4% |
| Gross MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 2.5% | 2.0% | 1.6% | 2.0% | 1.6% | 1.5% |
| Good / Top quartile | 4.8% | 3.6% | 3.0% | 3.3% | 2.8% | 2.2% |
| Ok / Median | 4.1% | 5.7% | 5.3% | 5.3% | 4.0% | 5.8% |
| Can be better / Bottom quartile | 16.5% | 10.5% | 9.0% | 9.5% | 8.0% | 11.1% |
| Customer Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 1.5% | 1.4% | 1.3% | 1.3% | 1.5% | 1.3% |
| Good / Top quartile | 3.2% | 2.5% | 2.2% | 2.3% | 2.0% | 1.7% |
| Ok / Median | 6.5% | 4.1% | 3.7% | 3.8% | 3.1% | 4.1% |
| Can be better / Bottom quartile | 11.6% | 7.3% | 6.9% | 6.5% | 5.6% | 7.4% |
Churn benchmarks by ARPA range
The revenue churn rate for a median company varies by the ARPA band they are in. For companies with ARPA per month in the range of <$25, the median gross MRR churn rate is 8.2%, and the median net MRR churn rate is 6%. It decreases to 2.4% (gross) and 0.4% (net) as your ARPA per month increases to >$500.
| New MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 1.3% | -0.3% | -1.2% | -1.2% | -1.9% | -2.6% |
| Good / Top quartile | 3.2% | 0.8% | 0.1% | 0.4% | -0.4% | -0.8% |
| Ok / Median | 6.0% | 2.8% | 1.3% | 0.7% | 0.4% | 0.1% |
| Can be better / Bottom quartile | 10.2% | 5.7% | 3.4% | 2.5% | 1.4% | 1.4% |
| Gross MRR Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 3.3% | 2.5% | 2.0% | 1.5% | 0.9% | 0.7% |
| Good / Top quartile | 5.4% | 3.7% | 3.0% | 2.2% | 1.6% | 1.1% |
| Ok / Median | 8.2% | 5.7% | 4.8% | 3.6% | 2.4% | 2.7% |
| Can be better / Bottom quartile | 13.3% | 10.3% | 8.7% | 5.7% | 5.3% | 6.0% |
| Customer Churn Rate (Monthly) | <$300k | $300k-1M | $1-3M | $3-8M | 8-15M | $15-30M |
|---|---|---|---|---|---|---|
| Best-in-class / Top decile | 2.5% | 1.7% | 1.4% | 1.0% | 0.9% | 0.7% |
| Good / Top quartile | 4.0% | 2.8% | 1.9% | 1.9% | 1.4% | 1.1% |
| Ok / Median | 6.1% | 4.2% | 3.1% | 3.0% | 2.2% | 1.8% |
| Can be better / Bottom quartile | 9.3% | 7.4% | 5.8% | 4.7% | 3.6% | 3.5% |
For companies with lower ARPA, the rate is higher while for companies with higher ARPA it is lower.
You should always look at both your net churn rate and your gross churn rate. Focusing too much on the net number can make you blind to other reasons for your customers churning that can be addressed by your product and/or commercial teams. So, if you’re not looking at churn from all sides and working to address the things that can be fixed, you are missing an important opportunity to grow.