Churn rate measures how quickly people leave (cancel or unsubscribe from) a SaaS service. Some churn is expected in SaaS (no customer will stay forever), but a high churn rate can indicate a lack of product-market fit, poor service, disappointing outcomes or a host of other business problems which may result in the customer choosing to cancel their service.
According to the SaaS Metrics Report, about 36% of SaaS companies experience churn rates of more than 10%. Furthermore, 32% of SaaS companies experience churn rate between 5% and 10%.
Most businesses will quote churn as a monthly figure – e.g. 5% means that they lost 5% of their total customer base in a given month. However, for companies that bill annually, it may make more sense to quote annual churn. Either is fine, but just ensure that you're clear about which number you're referring to!
It's entirely possible to lose more customers than you do revenue in a given period, which is why you should check both periodically. For instance, you might lose five customers, but four of them pay you virtually nothing. This could be a really high user churn number, but the revenue impact may not be that high.
Comparing user and revenue churn gives you a better idea of the composition of your customer base and the seriousness of your losses.
Lots has been written about churn. Some of our favorite pieces include: