If you run a SaaS business, churn is your worst enemy. It jeopardizes your growth, eats away at your profits and, when it gets really out of hand, calls into question your whole business model. Because of this, SaaS executives tend to keep a very close eye on churn.
But there’s a problem: There’s no universal metric for tracking churn. In fact, there’s so much information about the intricacies of churn that SaaS leaders have to wade through a sea of conflicting advice and complicated equations if they want to have any idea about how cancellations are affecting their business.
Here’s just a smattering of the various ways thought leaders tell SaaS leaders to think about churn.
- “How can it be so confusing?” asks Shopify at the beginning of its lengthy blog post titled ‘Defining Churn Rate (no really, this actually requires an entire blog post).’ After a lot of preamble, Shopify ends up providing executives with this equation:
- “I built a very simple model,” writes David Skok, perhaps the leading authority on churn rate, in his long post explaining why revenue churn is so essential for growing SaaS businesses. He then proceeds to spend 2,200 words and 7 charts fleshing out his simple model.
- Lincoln Murphy, another SaaS metrics heavy-hitter, published a popular post attempting to help young SaaS companies benchmark their own churn rates to see if they fell in a normal zone. At the end of the lengthy post, in a section called “A Complete Over-Simplification of Churn,” Murphy apologizes for not doing justice to the true complexity of churn before saying “The reality is that while churn is a linear function, customer retention is generally charted as a curve with actual losses ‒ both customer and revenue ‒ progressively deccelerating.”
And that’s his over-simplified version.
- Ok, one more: Joel York tackles churn in a detailed Q&A, during which he provides 7 tips aimed at “tackling the many problems associated with measuring churn.” He even dives into the increasingly popular idea of tracking churn by only looking at contracts that are up for renewal, for which he provides this image:
Tracking churn isn’t nearly as easy as you thought, huh?
Well churn is important to us too, so we read all of this material (and a lot more) and we were left feeling a little overwhelmed. All of this granular, conditional, case-by-case detail is important, but it sometimes made us feel like we were missing the forest for the trees.
So we decided to boil all this information about churn down to its most fundamental parts. And what we came up with is this one-page guide to the 3 main types of churn. It won’t give you every single thing you need to know about churn, but it will help SaaS executives think holistically about churn, and how they should measure it for their specific company stage and context.