Customer Churn Rate – Business Tips

The Churn Rate is also known as customer churn or the rate at which customers cease doing business with an entity. It is the percentage of service subscribers who cancel their subscriptions within a certain time frame. But, What is a good customer Churn Rate that will not hinder your business growth?

This article will explain in detail what Churn Rates are, how they may affect your business, and also clarify What is a good customer Churn Rate that will not affect negatively the growth rate of your business.

Churn Rate also measures the rate at which employees quit their jobs within a given time period. To increase its clientele, a company’s growth rate (measured as the number of new clients) must exceed its Churn Rate.

The Key Takeaways

• The Churn Rate is a measure of a company’s loss to subscribers over a certain period.
• Churn Rates can also be applied to subscription-based companies and to employees who leave a company.
• The growth rate and Churn Rate are diametrically opposed factors. The former measures customer loss, while the latter measures the acquisition of customers.
• A company must ensure that its subscriptions increase in order to grow.
• Every industry will have a different average rate of churn that companies can compare to determine their competitiveness.

Understanding Churn Rate

A high Churn Rates could negatively impact profits and slow growth rate. The telecommunications industry is affected by a high Churn Rate. Many of these companies compete in most areas, making it simple for people to switch providers.

The Churn Rate does not only include customers switching carriers, but also customers quitting service without switching. This measurement is most useful in subscription-based businesses, where subscription fees make up the majority of the revenues.

The definition of a good or poor Churn Rate will vary from one industry to the next.

What is an average churn rate?

SaaS has a churn average of 5%. A “good” rate is 3% or less. This varies widely across industries and businesses, so there is no “average” Churn Rates.

It’s not helpful that there is no B2B subscription reporting system for churn, or any other metric. Some companies report revenue churn while others only share churn numbers. Often, there is no distinction between whether churn figures are monthly or annual. doesn’t help. Often, there is no distinction between whether the churn figures are monthly or annual.

Just take a look at these surveys:

A 2018 KBCM Technology Group survey found that the median annual revenue churn rates were 13.2% and 21% for logo churn among 162 respondents. However, this excludes companies with less than $5m of revenue.

Zuora’s 2019 Subscription Economy Index reports average customer turnover rates across a variety of industries. These include Business Services at the low end (16.2% customer rate) and Media at the high end (37% customer rate).

Although the data is a bit older, Totango’s 2016, SaaS Metrics Report lists an extensive range of Churn Rates across its respondents. The median annual Churn Rate falls somewhere in the 5-10% region.

Nathan Latka interviews founders, and publishes their SaaS metrics on his website. The average gross Churn Rate for the 300 listed companies is 16.8%. These are, I believe, monthly churn numbers.

Recurly, a subscription service, reports a average monthly rate of 5.6% across more than 1,500 sites. the churn numbers for B2B and C differ, with B2C companies experiencing a higher Churn Rate (7.05%) than those for B2B (5%).

Based on these data, the average churn (specifically, the average monthly revenue churn rate) could range from 1% to 17%. Most studies report the median monthly churn Rates in the 5-10% range.

Why are average churn numbers so different?

average churn numbers are not consistent because every company and every market is unique.

Subscription company Churn Rates vary depending on both the external dimensions (like where you are and what your target customers will pay) and the internal dimensions (like pricing structure , contract lengths and company age).

Different industries have different average churn rates

Different factors affect churn in different industries.

Recurly, a subscription platform, sampled over 1,500 subscription businesses in 2018 from across their customer database. They used their platform to determine the industry average Churn Rate.

The data tell a clear story.

• The average churn rate of SaaS companies was 4.8% with lower and upper quartiles of 8.5%, respectively.
• Media and entertainment services saw a monthly churn Rate of approximately 5.2%.
• Healthcare subscription services were slightly higher at 7.5%.
• Consumer goods and education services had similar monthly churn Rates around 9.6%.
• Subscription boxes were the most expensive of the bunch with a monthly churn Rate of 10.54%.
• The average churn rate of SaaS companies was 4.8% with lower and upper quartiles of 8.5%, respectively.
• Media and entertainment services saw a monthly churn Rate of approximately 5.2%.
• Healthcare subscription services were slightly higher at 7.5%.
• Consumer goods and education services had similar monthly churn Rates around 9.6%.
• Subscription boxes were the most expensive of the bunch with a monthly churn Rate of 10.54%.
• The average churn rate of SaaS companies was 4.8% with lower and upper quartiles of 8.5%, respectively.
• Media and entertainment services saw a monthly churn Rate of approximately 5.2%.
• Healthcare subscription services were slightly higher at 7.5%.
• Consumer goods and education services had similar monthly churn Rates around 9.6%.
• Subscription boxes were the most expensive of the bunch with a monthly churn Rate of 10.54%.

The most significant differences in average churn rates by industry are determined by whether services are sold directly to consumers or businesses. SaaS, for instance, has a higher percentage of B2B products, which tends to have lower churn. Subscription boxes and entertainment services such as Netflix and YouTube have a higher customer attrition Rate than other services. This is because they aren’t considered “essential.”

The difference between churn rates and customer retention rates

Churn Rate refers to the percentage of customers who sign up but then leave within a certain time. customer retention rate is the percentage that customers stay with you after signing up.

Simply put, Churn Rates are bad because they mean you’re losing customers. retention rate is good because you’re keeping customers.

A high customer retention rate and low Churn Rate have three main benefits.

First, you are likely to incur new customer acquisition costs.

You need to spend $100 on advertising to get one customer who will pay you $50 per month. This customer must stay with you for at most 2 months to break even, and 3 months to make profit. You’ve just lost $50 if the customer leaves after one month.

A low churn and high retention rate are two other signs that your customers are satisfied with your product.

This means that you have identified a market need and are successfully filling it. It’s up to you now to innovate so that you don’t lose the edge over potential competitors who enter the market.

A high retention rate can help you predict your future revenues. This is crucial when you are looking to expand your team, increase your ad budget, or enhance your product or feature suite.

A high retention rate will allow you to feel confident that money will continue flowing in while you invest in the future of your business.

All of these reasons are why you should be keeping track of your customer retention rate and churn rate.

Although it may seem obvious, your retention rate is the most important metric for customer retention.

To Determine Churn and retention Rates, you should track the following metrics

These metrics are important to know when you prepare a retention rate and churn report.

• Number of new customers who joined the company in the last month.
• Number of new customers that were added in the past year.
• Number of customers who cancel after the first 30 days.
• Number of customers who cancel after the first one year.
• Average number of months a customer is a customer before they cancel.

If you lock customers into annual contracts, which is common in enterprise SaaS, don’t worry if customers cancel before the end.

To determine your SaaS Churn Rate, however, you should offer a free trial of your SaaS business for a month before you lock a customer into an annually contract.

Is there a “good” rate of churn?

According to our churn studies, the average customer Churn Rates for SaaS companies range from 1-20% of monthly recurring revenue (MRR) to anywhere in between. A Churn Rate of 2 percent or less would be considered “good”.

But that’s not the end of the story. It’s difficult to compare Churn Rates between different companies because every company, market, and product is unique. There are too many variables.

What benchmarks should subscription businesses aim for? What is a good rate of churn?

Benchmarks for Churn Rates: How High is Too High?

Every business is unique and there is no one right answer. However, it doesn’t stop people asking questions and demanding the answers.

While the answer is always “It Depends”, below you will find the meta analysis of different SaaS-churn benchmarks.

It won’t give you exact answers, but it will help you to get a sense of where you are. Then you can assess your situation and then work from there.

There will always be customers who cancel their subscriptions due to failed payments, cashflow crises, or just plain unhappiness.

Refer to the benchmarks below to help you determine which side of unavoidable chaos you are on.

The mythical benchmark of 5%

There are many opinions on “ideal” SaaS-based Churn Rates. Most commentators seem to agree with this view.

“An acceptable rate of churn is between 5 and 7% yearly, depending on whether you measure revenue or customers.”

This is an excerpt from a blog article, SaaS Churn Rate: What’s acceptable?, published in 2013. It is probably the most comprehensive article on churn, and has been used as an industry benchmark.

Well…

The industry benchmark is not 5% annually.

To put it in perspective: 0.4% monthly churn . This is completely unrealistic.

It could be wishful thinking, or it could be a goal you are aiming for. However, 0.4% monthly churn (which is 5% annually) is not industry benchmark.

Conclusion

So, What is a good customer Churn Rate? If you are a large, established SaaS company on track for IPO, or any other exit, your churn rates targets are clear: You need to reach 5-7% annual churn.

Or, at the minimum, show this amount in any way possible, even if it does not ideally reflect reality.

If you are an early-stage SaaS company, things may not be so straightforward. Even a SaaS company like Buffer is still struggling with a 5+% monthly turnover rate.

Although it’s difficult to give a specific benchmark, the data and studies above suggest that a 5% monthly rate of churn is quite common and not a barrier to growth, as shown by Convertkit, Baremetrics, and Buffer.