Ever tried filling a bath with the plug out? You keep pouring water in but the level never rises. Your B2B SaaS business works the same way. However many new customers you sign, if your existing customers leave too quickly, you'll never build a profitable business!

What exactly are we talking about? How do you calculate your churn rate? What can you do to predict and prevent churn? We explain it all.

What is churn?

Churn (also called attrition) means losing subscribers, users or customers. In SaaS, a customer "churns" when they cancel their subscription.

There are 4 types of churn:

Abandonment: the customer stops using your product. Perhaps they no longer need it, or they've replaced it with an alternative, such as an in-house solution.
Switching to a competitor: if your product isn't competitive or is too expensive for some customers, you run the risk of them looking elsewhere.
Switching to another of your company's offers: this is known as internal churn.
Voluntary churn: your customer is dissatisfied, for example with your pricing or customer service.

How do you calculate churn?

There are two main metrics for measuring churn:

Logo churn (or customer attrition rate): one of the most important SaaS KPIs. It's the percentage of customers lost out of a company's total number of customers.
MRR churn: the MRR (Monthly Recurring Revenue) lost through cancellations as a share of the company's total MRR. This metric shows the real impact of attrition on your revenue.

Let's take an example. Over one month, 3 customers cancel out of a base of 100. Your logo churn rate is 3%. If those 3 customers generate a combined MRR of €1,000 and your total MRR is €10,000, your MRR churn rate is 10%. Quite a difference!

MRR and Customer Churn rate formulas

You can also analyse churn by factoring in the revenue generated by existing customers. This is called Net Revenue Retention (NRR), and it's calculated as follows:

[(MRR at start of period - MRR lost to churn - MRR lost to contraction + MRR gained from expansion) / MRR at start of period] x 100

The holy grail for any SaaS business is net retention above 100%. That means the extra revenue from your existing accounts more than offsets churn.

What is a good churn rate in SaaS?

It's natural to wonder whether your churn rate is too high. The real question is how you compare with the market.

According to a ChartMogul study of SaaS companies, a good monthly logo churn rate sits at around 2% for SaaS businesses with more than €1 million in ARR. The best performers have monthly churn of around 1.3%. The median falls as companies generate more ARR.

Another finding: the higher the average revenue per account (ARPA), the better the churn rate. Put simply, when the average deal size is high, customers are more committed.

Monthly churn rates for SaaS companies by ARR band

Monthly churn rates for SaaS companies by ARR band

Bear in mind too that churn compounds and can have a significant impact on company growth. With new business MRR growing at a constant rate, a difference of just one point in MRR churn can mean millions of euros in lost revenue over a few years.

Anti-churn strategies: how do I reduce my churn rate?

Whatever your churn rate today, reducing it is one of your Customer Success team's goals. Here are some tips to stop your customers from cancelling.

#1. Work on your customer-product fit

As we've said, there's no point working with bad-fit customers. The trouble is that the ideal customer defined by Marketing or Sales doesn't always match reality on the ground. It can also change over time. Make a habit of checking regularly that your customer profile still holds. To do that, look at which types of customer are satisfied with the solution today.

#2. Think anti-churn across the whole customer journey

You can put processes in place to set your renewals up for success.

Improve onboarding

The days after sign-up are crucial. Insufficient product use at the start of the contract significantly increases the risk of churn later on. To avoid this, build a solid onboarding process.

We recommend preparing a comprehensive programme. It should increase in difficulty step by step, give users the keys to using the product and demonstrate its value. In practice, that could mean a training session or workshop led by a person, or a digital format (product tours, online academies). You can also take a hybrid approach that combines the two.

Support change management

A new tool for your customer means a change in how they work. Many stakeholders need to adapt to fit the new tool into their day-to-day. Make sure you support every one of them.

How?

Make sure decision-makers communicate with end users in advance.
Coach your decision-makers so they can explain internally why your solution matters.
Train end users gradually, according to their roles, skill levels and use cases.

By taking the time to follow these steps before rolling out a platform, you help end users understand the approach. They'll be all the more willing to adopt your solution.

Talk to several contacts, and test them

It's crucial to identify the role of each contact at the start of the partnership. For example, work out who the decision-maker, users and champion are. We also recommend building multiple contacts so you don't depend on a single person. The benefits: access to more information and more internal support. And try to tailor your message to each contact.

Finally, remember to test everyone's role. For example, you can find out whether a champion really is one by asking them to introduce you to someone strategic. If they refuse, that's a bad sign.

Demonstrate value throughout the lifecycle

CSMs need to be proactive in their customer relationships, to ensure the highest possible satisfaction and deliver value throughout the customer lifecycle. So stay close to your customers through regular contact, to spot any problems or sticking points. This will help you identify customer risks and limit churn in the long run.

And that doesn't only apply during onboarding! Use monthly or quarterly check-ins, as well as email exchanges, to remind customers of your software's value. Remember that every interaction with your customers is an opportunity to show and reinforce the value of your solution.

#3. Detect churn before it happens

If your customers are thinking about dropping your product, they may give off warning signs. It's essential to pay attention to them. Here are the most common:

Little or no product usage: we recommend tracking usage data to identify accounts that rarely or never log in to your software.
Budget cuts: during your check-ins, ask your contacts how their company is doing. You can offer a cheaper plan if they're facing financial difficulties, since a downsell is always better than churn.
The customer is having problems with the product: most issues can be solved by the support team or the documentation. Always stay proactive, listen to your customer and help them find workarounds when they feel stuck.
Ghosting: if your contact hasn't answered your emails and calls for months, you can expect them to cancel their subscription.
The customer is a bad fit: when salespeople have ambitious targets, they risk selling to the wrong customers, in other words those whose needs don't match your product. Identify these customers as soon as you take them on. It's better not to invest too much effort in these profiles, which are usually lost causes.
Restructuring at the customer: mergers and acquisitions create a lot of uncertainty. For example, an acquired company may move to a competitor because the parent company already uses it.
The champion leaves: when the person who championed your solution internally leaves the company, there's a risk of churn. If this happens, make sure you get in touch with their replacement as soon as possible and stay in regular contact with them. And follow your champion to their new company.

All these factors can be hard to track manually. The solution for predicting and preventing churn: set up a health score. It takes into account usage data, customer interactions and how the contract is evolving. This is where a Customer Success Platform comes in handy. It centralises all your data in one place to give you a true picture of customer health.

#4. Analyse your churn

The aim is to identify the reasons why your customers churned. A churn analysis can be a very powerful way to prevent future cancellations by putting corrective actions in place.

Another, more in-depth analysis to carry out: cohorts. A cohort is a group of customers who signed up on given dates. Put simply, work out why some cohorts perform better than others.

#5. Use customer feedback

Customer feedback on your product, such as feature requests, is a powerful lever for reducing churn. You can collect it through several well-defined channels:

During check-ins
From support tickets
In the cancellation form and through surveys of customers who have cancelled
With playbooks: these automated workflows let you contact customers at specific moments or based on their behaviour.

We recommend structuring the feedback you receive while keeping it simple. Describe the problem encountered and state the priority of the request.

To have an impact on churn, it's essential to close the feedback loop. In other words, once the feature is released, the CSM needs to know as soon as possible. For example, you can set up an automated Slack notification for this. You can then let the customer know, and they'll feel valued.

Need to scale your Customer Success?

Meet Skalin, the next-generation Customer Success platform that makes teams more productive with AI

SaaS churn: definition, calculation and 5 anti-churn strategies