Churn is a nightmare for any SaaS business. Still, it is equally crucial to keep a check on it. Customer churn calculation is about finding the number of customers who left engaging with you  in a set period. If you do not keep track of this number, you will be clueless about the fall in your revenue or customer base. Though attaining new customers can reduce the overall loss, it eliminates churn and multiplies the growth. Especially for SaaS-based businesses, revenue growth relies on subscriptions, and churn can cause a significant loss. 

What is the SaaS Customer Churn Rate?

SaaS businesses offer software as a service and deal in a B2B setup. Customer churn in this scenario is the number of customers you lose over some time. It can be an end-of-term or those customers who refused to extend the contract. Even if your recurring revenue is high, the customer acquisition cost will be unrecoverable if your churn is higher than expected. Hence, businesses should monitor the churn rate to ensure steady revenue growth and control customer acquisition costs.

By calculating the net promoter score, you can get an idea about the churn. A higher number of people promoting your business indicates a lower churn rate. However, there is a dedicated formula to calculate churn. Let us discuss that in detail.

Customer Churn Rate Calculation 

Calculating your churn rate is simple. Divide the number of customers churned during the period with the total number of customers at the start of that time period. The formula is:

Customer Churn = (Number of customers lost during a period / Total customers at the start) x 100

For example, if you started with 1000 customers and lost 300 customers at the end of a pre-decided time period. Your customer churn will be:

Customer Churn = (300/1000) x 100 = 30%. 

Using this formula, you can calculate your churn rate and plan your business strategies accordingly. 

Addressing Customer Churn and Why It Is Significant to Calculate

The churn rate directly impacts the SaaS growth, and a low customer churn indicates that the business is on the right track. Thus, the businesses that offer software as a service should work towards keeping the churn under control if they want to enjoy a longer customer lifetime and recurring revenue. Though the ideal situation would be to keep the churn rate zero, it is fruitful to keep it as low as possible. There are multiple benefits of customer churn calculation. Some of the advantages are listed below. 

• Higher Customer Retention

You can retain your customers when you track your customer churn rate and work towards keeping it under control. You give them more reasons to stick to your business, and eventually, your customer base increases exponentially.

• Recurring Revenue

You have retained most of your customers and convinced them that your services are worth using. So, you can surely expect recurring purchases from all of them. Thus, another benefit of keeping track of customer churn is revenue growth. 

• Higher Net Promoter Score

The customers you retain for a long time ultimately develop a strong relationship with you and start advocating the brand. After you have achieved an optimum churn rate, calculating the net promoter score will show you visible results. Your promoter score will increase exponentially.

• Early Identification 

Calculating your customer churn will help you identify the potential fall in your revenue at a very early stage. You will still have time to reach out to your customers and convince them to drop the plan to end ties. Listen to their issues and provide satisfactory solutions to win their trust and keep them glued to your business.

• Support Business Planning

This calculation helps you plan the entire business strategy fruitfully. You will have track of the customer satisfaction level and an understanding of how well you are catering to their needs. This metric will help you understand the current business situation, and you can plan the strategies to reach your desired goals. 

There are multiple benefits of calculating customer churn rate. So, if you run a SaaS business and wish to sustain it for a long, it is important to keep an eye on the churn rate. Keep calculating this metric every few months to ensure everything is on track and the business is moving towards success.