SaaS School: Understanding Churn. Why It’s More Than Just a Leaky Bucket

In SaaS, growth is everything—but growth without retention is just running in place.

That’s where churn comes in.

Churn is the rate at which you lose customers or revenue over time—and if you’re not measuring it right, you could be flying blind.

📉 Two Types of Churn You Should Know

1. Customer Churn: % of customers who cancel or don’t renew.
2. Revenue Churn (aka MRR Churn): % of monthly recurring revenue lost from cancellations, downgrades, or contractions.

Revenue churn matters most for SaaS finance leaders. Because at the end of the day, it’s not just about who leaves—it’s about how much revenue goes with them.

💸 Why Churn Matters (Especially to Finance Teams)

• Forecasting becomes shaky when churn is high.
• Investors track Net Revenue Retention (NRR) as a proxy for product-market fit.
• Growth efficiency tanks if you’re losing as many customers as you’re acquiring.

You can’t scale what you can’t retain.

🧮 How to Calculate Revenue Churn

Here’s the formula:

Revenue Churn Rate = Churned MRR ÷ Starting MRR

Example: If you start with $100K in MRR and lose $5K from downgrades/cancellations:

$5,000 ÷ $100,000 = 5% churn

Bonus tip: Track both gross churn (losses) and net churn (losses minus expansion revenue) for a fuller picture.

📊 Why Spreadsheets Fall Short

Most teams start with spreadsheets, but they quickly run into:

• Inconsistent churn definitions
• Missed revenue contractions
• Difficulty reconciling with GAAP
• Poor visibility by cohort, plan, or source

Manual churn tracking = major blind spots as you scale.

If you’re serious about retention, you need to operationalize churn tracking with clean, connected, and automated data.

💬 Over to you: How are you currently tracking churn in your SaaS? Is it giving you the clarity you need?

💬 Read more here