What is Churn Rate? How to Calculate Customer Churn (Definition + Meaning)

churn rateWhen it comes to running a business, particularly a SaaS company, understanding churn is vital.

There’s a lot to cover, so let’s cut straight to the chase.

In this Process Street article, we’ll look at:

  • What is churn?
  • How to calculate churn rate
  • Churn examples: From Facebook to Twitter to HubSpot
  • Why do customers churn?
  • McKinsey’s 4 best practices to increase retention rates 15%
  • 3 practical steps to reduce churn in your business
  • The Harvard churn management algorithm
  • Churn management resources to help you reduce churn
  • Use Process Street to help you tackle churn in your business

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What is Churn? An Introduction for SaaS Companies

What is Churn

Churn is the enemy.

Churn is the sickness that will kill your SaaS company.

Redpoint VC Tomasz Tunguz showed us just how damaging churn is to the MRR of SaaS companies and how an adjustment of just 5% can make a massive impact.

Churn is the rate your customers are cancelling their subscriptions to your product.

One of the key outcomes of any customer success strategy is to reduce churn by helping disenfranchised customers continue to get value from what you’re offering them.

The pricing model of SaaS lends itself well to being extremely profitable. But as David Skok says in his post about achieving negative churn, there are massive risks.

The nature of subscriptions mean that your customers are paying you regularly which brings in recurring revenue, but also puts you in a precarious position.

Every time your customers get the bill for your product through on their statement, they’re asking the question: This month, did this product save me more money than it cost me?

Over the past two weeks, I’ve answered two questions: What is Customer Success? And Why is Customer Success Important?┬áToday I’m going to answer the question ‘What is churn?’. It all boils down to one thing. Customer success teams and strategies are in place to stop customers cancelling.

They exist to reduce churn.

Let’s look at this in more detail.

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