Churn rate is a key SaaS metric that measures the percentage of customers who stop using or cancel a software product during a specific period of time. In subscription-based businesses, churn rate is one of the clearest indicators of customer satisfaction, product value, and long-term business health.
In simple terms, churn rate answers the question:
“How many customers are we losing?”
For SaaS companies, churn can occur when users cancel their subscriptions, downgrade to a free plan, or fail to renew at the end of a billing cycle. A high churn rate often signals issues such as poor onboarding, lack of product-market fit, pricing concerns, or weak customer support. On the other hand, a low churn rate suggests that customers find consistent value in the product and are willing to stay long term.
Churn rate is especially important for SaaS listings and reviews because it reflects real customer behavior, not just sign-ups or marketing claims. Two SaaS tools may attract similar numbers of users, but the one with lower churn is typically delivering stronger ongoing value. Buyers often view low churn as a sign of reliability and product maturity.
There are two common types of churn in SaaS:
- Customer churn, which tracks the number of users lost
- Revenue churn, which measures the revenue lost due to cancellations or downgrades
Understanding churn also helps SaaS teams identify specific scenarios where users drop off, such as after a free trial, during onboarding, or at renewal time. This insight allows teams to improve retention through better UX, feature enhancements, or proactive support.
How churn rate is calculated:
Churn Rate = (Customers Lost During Period ÷ Customers at Start of Period) × 100
Example:
A SaaS analytics platform starts the month with 1,000 paying customers. During the month, 50 customers cancel their subscriptions.
Churn Rate = (50 ÷ 1,000) × 100 = 5%
This means the company lost 5% of its customers that month. Reducing churn, even by a small percentage, can significantly improve revenue and long-term growth.