What is Gross Churn Rate?
Think of your customers like water in a bucket with a hole. Gross churn rate measures how much water you’re losing through that hole, regardless of how much new water you’re adding from the tap.
The Basic Formula for Gross Churn Rate
Gross Churn Rate = (Number of Lost Customers / Total Customers at Start) × 100
Real-World Example
A SaaS company starts January with:
- 500 total customers
- Loses 25 customers
- Gains 40 new customers
Gross Churn = (25 ÷ 500) × 100 = 5%
Note: Those 40 new customers don’t affect the gross churn calculation.
Healthy Benchmarks
For SaaS businesses:
- Excellent: < 5% annual (< 0.42% monthly)
- Good: 5-7% annual (0.42-0.58% monthly)
- Concerning: > 10% annual (> 0.83% monthly)
Remember: These vary by:
Why It Matters
High churn means:
- More new customers needed
- Higher acquisition costs
- Lower customer lifetime value
- Reduced predictable revenue
Example: 10% monthly churn = 72% of customers gone yearly
Gross vs Net Churn
Gross Churn: All lost customers
Net Churn: Lost customers minus expansions
Example:
Gross Churn = $1,000 Net Churn = $700 ($1,000 - $300)
Improving Your Churn Rate
Early Warning Signs
- Decreased usage
- Lower engagement
- More support tickets
- Missed payments
Think of these as smoke alarms before the fire.
Action Steps
- Monitor usage patterns
- Engage before problems
- Gather exit feedback
- Improve onboarding
Like preventive maintenance for your customer base.
Advanced Considerations
Subscription Length Impact
- Annual contracts typically show lower monthly churn than monthly subscriptions.
Example:
- Monthly contracts: 3-7% monthly churn
- Annual contracts: 0.5-1.5% monthly churn
Customer Segment Analysis
Break down churn by:
- Customer size
- Industry
- Plan type
- Usage level
This helps identify where the biggest holes in your bucket are.
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