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.
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%