What is revenue churn rate?
Revenue churn rate metric measures the amount of revenue that a company loses as a result of customers cancelling, not renewing, or downgrading their subscriptions or contracts. This metric is typically used to assess the effectiveness of a company's customer retention efforts.
How to calculate revenue churn rate?
To calculate the revenue churn rate, first, you need to calculate revenue lost due to churn by adding ‘churned MRR’ and ‘downgrade MRR’ during a particular period.
Now, divide this number by ‘MRR at the end’ of that period and multiply by 100.
Formula for calculating revenue churn rate
Real-life example of revenue churn rate
Let’s say your business had an MRR of $50,000 the previous month. Throughout this month, you lost $2,000 in MRR to churn and downgrades. Then, your revenue churn rate will be: 2,000/50,000 x 100 = 4%
This means your company is losing 4% of its revenue due to customers cancelling their subscriptions.
What’s considered a good revenue churn rate? (benchmark)
A good SaaS revenue churn rate benchmark falls between 5% - 7% for annual churn and under 1% for monthly churn. A high revenue churn rate may indicate that a company is struggling to keep its customers.
To determine a good revenue churn rate for your business, you can compare it to the churn rates of your competitors. You can also benchmark your churn rate against the averages for your industry.
Ultimately, the goal is to have a revenue churn rate that is as low as possible while still being sustainable for your business.
Ways to reduce your revenue churn rate
- Improve the quality of your product or service: By offering a high-quality product or service, you can reduce the likelihood of customers churning due to dissatisfaction with what you're offering.
- Provide excellent customer service: U.S. companies lose more than $62 billion every year due to poor customer service. Customers who feel valued and supported are more likely to stay with your company, so make sure to provide timely, helpful, and personalized customer service.
- Identify at-risk customers and take action: Use data and analytics to identify customers who may be at risk of churning, and then take steps to address their concerns and retain their business. Read: How to Identify Customers at Risk of Churn