Dave Kellog published a new post recently titled A Fresh Look at How to Measure SaaS Churn Rates in which he introduces several new concepts related to SaaS churn. On the surface, SaaS churn seems pretty straightforward — take the number of customers that were up for renewal at the start of the time period, take the number that left during the time period, and divide the second into the first — but it’s much more nuanced than that. What about logo vs revenue churn, by cohort, by product, by account, or by any of a number of other measures? It gets more complicated, quickly.
Here are a few notes from the article:
- Leaky Bucket Equation: Starting ARR + new ARR – churn ARR = ending ARR
- Tracking it as churn is more common that tracking it as renewals
- Shrinkage (anything that shrinks ARR) and expansion (anything that expands ARR) need to be factored in
- Two most important churn rates: logos (by customer count) and ARR (by recurring revenue)
- 5 churn rate formulas:
- Simple churn = net churn / starting period ARR * 4
- Logo churn = number of discontinuing logos / number of ATR+ logos.
- Retention = current ARR [time cohort] / time-ago ARR [time cohort]
- Net churn = account-level churn / ATR+
- Gross churn = shrinkage / ATR+
Want to better understand churn in the context of SaaS? Head over to A Fresh Look at How to Measure SaaS Churn Rates and take a deep dive.
What else? What are some other good resources on SaaS churn?
David Cummings on Startups 