- What is a good monthly churn rate for a SaaS business?
- World-class SaaS companies target monthly churn below 0.5% to 1%. A 2% monthly rate sounds small but compounds to about 22% annual churn, meaning you lose roughly 1 in 5 customers per year. Early-stage companies often see 5 to 8% monthly churn as they find product-market fit.
- How does monthly churn translate to annual churn?
- Annual churn is not simply 12 times the monthly rate. The correct formula is: Annual Churn = 1 - (1 - monthly churn)^12. At 2% monthly churn, annual churn is about 21.5%, not 24%.
- What is average customer lifetime?
- Average customer lifetime = 1 / churn rate (expressed as a decimal). At 3% monthly churn, the average customer stays for about 33 months (approximately 2.8 years). This is also the basis for calculating LTV: LTV = ARPU x average lifetime.
- What is the difference between customer churn and revenue churn?
- Customer churn counts the percentage of customers lost. Revenue churn (also called MRR churn) measures the percentage of revenue lost. If high-value customers churn at higher rates, revenue churn can be much worse than customer churn, and vice versa.
