How is Churn Rate Calculated in SaaS?

How is Churn Rate Calculated in SaaS?

–               What is a Churn Rate?

Starting with the basics what a churn rate is? A churn rate is a rate at which your customers are canceling their subscriptions. It is the most widely discussed metrics in the subscription industry. It is the percent of subscribers who stopped paying you. Your subscription business thrives on customer retention.

Churn plays a significant role in measuring the failure in SaaS. As customers who tried your product and not finding it worth paying. SaaS churn rate is the key SaaS metric of SaaS business performance and also considered an important factor in forecasting the revenue.

Churn is considered to be one of the most serious problems that many startups face. But there is one way to deal with this. It is important for you to be honest and loyal to your business. It is vital for you to understand the churn that represents your company.

If you want your customers to stick to your company or brand. Then it is super important for you to inhale out your retention issues. Also, it is needed to fix them out before they turn out to be a big disaster for you.

This article is all about what is a churn rate. What is a SaaS business and most importantly how is churn rate calculated in SaaS?

–               What is SaaS?

Now that we have viewed what a churn rate is. Let us now have a look at the SaaS as well. A SaaS short for software as a company is a software distribution model. In this model, a third-party provider hosts the application and make them available to the customers on the internet. It is considered to be a type of cloud computing.

The way SaaS businesses work is simple. The SaaS company maintains servers, databases and some software. This allows these applications to be accessed over the internet. Most importantly for web browsers. And the users of these SaaS can access them on every device.

A SaaS customer usually has to pay a subscription fee in order to get the full features that specific software or application is providing to them. These subscription fees are usually on a monthly basis. The users have to pay for them every month.

Some kinds of subscriptions depend on the amount of data that needs to be stored. Or the number of users who access the applications and also sometimes depends on the maintenance that is required. So, the subscription fees may vary depending on these factors. Now let us have a look at some other factors as well.

–               What is a Churn Rate Formula?

To calculate a churn rate in a SaaS it is super important that you understand the churn rate formula. If you do not know the exact formula or you cannot understand it properly that it might look difficult to you. Also, you cannot able to know exactly how to calculate your customers.

So, these points are important to keep in mind while understanding the churn rate formula. All you need to do is to divide the number of churns with the total number of customers. The number of churned customers represents the number of people who left your service. Within a specific time period.

The formula that is most commonly used is given below:

A number of churned customers/ total number of customers.

–               Why it is Difficult to Understand the Churn?

Now, most of the people get confused when it comes to understanding the churn. It looks quite simple and straightforward. But in reality, you have to keep certain things in mind in order to successfully understand it. Or else you will surely find it difficult to understand.

You need to understand how exactly you will calculate the two numbers that affect the output. Also, you have to keep in mind businesses dependent on external factors. Because they greatly affect the way you calculate your churn.

–               How is Churn Rate Calculated in SaaS?

The calculation of the churn rate in a SaaS is pretty simple to start with. As mentioned earlier. But you have to calculate it with great care. It is easy. Take the number of customers you lost in the previous half and divide that with the number of customers that started using your service. The output you get after calculating it is the churn rate of that SaaS.

I hope that you will find is easy now how to calculate a churn rate in a SaaS. And will work perfectly for you.

Conclusion

This article is all about what is a churn rate and how a churn rate is calculated in SaaS. This article has tried to cover the maximum of information. That will perfectly help you understand about the SaaS companies. How they earn through the services they provide and also how to know the number of churned customers for their service.

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