The percentage rate at which SaaS customers cancel (churn), reduce (down-sell), or increase (up-sell) their recurring revenue subscriptions
What is it about?
Churn rate measures the percentage of customers that have stopped using your service during a given period. A high churn rate can be a sign of customer dissatisfaction or a lack of value being delivered by your service.
Net retention rate measures the percentage of customers that have stayed with your service after accounting for any new customer acquisitions during the same period. A high net retention rate indicates that your existing customers are finding value in your service and are less likely to churn.
Measuring churn and net retention is important for a SaaS company because it helps to track the sustainability and scalability of the business. It can also help you identify trends and make informed decisions about the direction of the company.
How to calculate?
To calculate churn and net retention in a SaaS (software as a service) company, you can use the following formulas:
Churn rate = (Number of customers lost / Number of customers at the beginning of the period) x 100
Net retention rate = ((Number of customers at the end of the period - Number of new customers acquired during the period) / Number of customers at the beginning of the period) x 100
Example:
Let's say your company had 100 customers at the beginning of the month, and you acquired 10 new customers during the month. At the end of the month, you had a total of 110 customers. However, during the month, 20 customers churned. Your churn rate and net retention rate for the month would be:
Churn rate = (20 / 100) x 100 = 20%
Net retention rate = ((110 - 10) / 100) x 100 = 90%
Gross Churn vs Net Churn
The formulas above count customers. The revenue view splits into two variants, and the difference is whether you subtract the gains.
| Gross MRR churn | Net MRR churn | |
|---|---|---|
| Counts | Cancellations and downgrades | Cancellations and downgrades |
| Also subtracts | Nothing | Expansion and reactivation revenue |
Gross MRR churn rate = (churned MRR + contraction MRR) / MRR at start of period.
Net MRR churn rate = (churned MRR + contraction MRR - expansion MRR - reactivation MRR) / MRR at start of period.
Two facts follow, both per ChartMogul. Gross MRR churn is always higher than net, because it ignores the gains. And gross churn can never go below zero, while net churn can: negative net churn means expansion and reactivation outweighed the losses in the period. These revenue variants complement the customer-count formulas above, they do not replace them. Both build on monthly recurring revenue.
An Illustrative Calculation
This is an illustrative calculation with round numbers, not a real company.
Suppose a company starts the month with $100,000 in MRR. It loses $4,000 to cancellations and $1,000 to downgrades, while existing customers add $3,000 in upgrades.
Gross MRR churn = ($4,000 + $1,000) / $100,000 = 5%.
Net MRR churn = ($5,000 - $3,000) / $100,000 = 2%.
Had upgrades been $6,000 instead, net churn would be -1%, which is negative churn: the company grew revenue from its existing base even after losses.
Where Partners Change the Math
Retention is one of the clearest places the partner ecosystem shows up in the numbers. Crossbeam's 2023 State of the Partner Ecosystem Report found that integration users are 58% less likely to churn. A customer who adopts a partner integration tends to stay longer and expand more, which moves both gross and net churn in the right direction. To measure that partner effect directly, see integration usage and quantifying total partnership impact.
Frequently Asked Questions
What is a good churn rate for SaaS?
ChartMogul's benchmark data puts the median early-stage SaaS company at about 6.2% net and 9.1% gross monthly MRR churn. Above $1M ARR, the median improves to roughly 2.3% net and 5.3% gross. Around 40% of companies in the $15M to $30M ARR band reach negative churn.
How do you calculate net negative churn?
There is no separate formula. Compute net MRR churn as above, and the result is negative when expansion plus reactivation MRR exceeds churned plus contraction MRR in the same period. Negative churn is simply the net churn formula returning a value below zero.
Related
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