Vareto Finance Glossary

Churn

Definition

Churn is the rate at which customers opt out of their recurring revenue subscriptions. SaaS companies use this metric to gauge the rate of cancellations during a period or over a period.

Example

Churn is used:a. To understand Customer Lifecycle Valuations.b. To gauge overall revenue performance and bookings, and estimate cash flows.c. SaaS churn numbers are also focused on by analysts and investors. SaaS businesses may use a variety of churn metrics while highlighting the true performance of the business to stakeholders.

Why it matters

SaaS churn rate is the rate at which a company's customers end existing subscriptions during a period.For any SaaS company to sustain itself, its growth rate (or new customer sign-ups) should be more than its churn rate (customers who cancel).Churn rates provide a reflection of business performance and are often used when forecasting revenue and growth.