In SaaS, growth doesn’t mean much if you can’t keep the customers you’ve already earned. That’s where churn comes in—and if you’re only looking at customer counts, you might be missing the bigger picture.

In this post, we’ll break down what churn really means for SaaS finance teams, why it impacts your company’s valuation and forecasting, and how to track it the right way.

What Is Churn in SaaS?

Churn is the rate at which your business loses customers or recurring revenue over time. It’s a key signal for product-market fit, customer satisfaction, and future growth potential.

There are two key types:

Customer Churn

• The percentage of customers who cancel or don’t renew in a given period.
  
  

Revenue Churn (a.k.a. MRR Churn)

• The percentage of monthly recurring revenue lost due to cancellations, downgrades, or contractions.
  
  

Why focus on revenue churn? Because it tells you how much actual revenue you’re losing—not just how many logos walked out the door.

Why Churn Matters to Finance Teams

Churn isn’t just a customer success issue—it’s a critical financial metric. Here’s why:

• 📉 High churn makes revenue forecasts unreliable.
• 📊 Investors look at Net Revenue Retention (NRR) to assess product stickiness.
• ⚖️ Growth efficiency drops when new MRR is offset by churned MRR.

If you’re losing as fast as you’re growing, you’re treading water. You can’t scale what you can’t retain.

How to Calculate Revenue Churn

Here’s the formula:

Revenue Churn Rate = Churned MRR ÷ Starting MRR

Example:
If you start the month with $100,000 in MRR and lose $5,000, that’s:

$5,000 ÷ $100,000 = 5% churn

🛠 Pro tip: Don’t just track gross churn. Net churn (which accounts for upgrades and expansion MRR) gives a more complete view.

Why You Should Move Beyond Spreadsheets

Many teams start with spreadsheets—but they quickly hit a wall:

• Inconsistent definitions of churn
• Missed revenue contractions
• Hard-to-reconcile metrics with GAAP
• No cohort or plan-level visibility
  
  

Manual tracking = blind spots. If you’re serious about reducing churn, you need automated, connected churn metrics tied into your financial ops.

Ready to go deeper? Read the full SaaS School guide on churn and how to operationalize it the right way → Read the Full Article

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