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Companies typically track three churn metrics: customer churn, gross-revenue churn, and net-revenue churn. The most comprehensive of these three metrics is net-revenue churn, as it captures both the dollar value lost from churning customers and the dollar value gained from expansion revenue (which comes from both up-selling and cross-selling to existing customers). Our analysis showed several results:

  • Across all three customer types, companies in the top quartile of growth maintained lower net-revenue churn than mean performers.
  • The net-revenue performance of the top-quartile-growth performers was driven most significantly by advantages in gross-revenue churn as opposed to logo churn or revenue expansion (upsell/cross sell) within existing accounts.
  • Companies that excel at lowering gross-revenue churn emphasize several key customer-success best practices throughout their organizations.
Mckinsey

More SaaS + Software Stats

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Because of the losses in the early days, which get bigger the more successful the company is at acquiring customers, it is much harder for management and investors to figure out whether a SaaS business is financially viable.

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26% of SAAS companies with at least $15MM in GAAP revenue had a revenue growth rate + EBITDA margin of 40% or higher.

26% of SAAS companies with at least $15MM in 2015 GAAP revenue had a revenue growth rate + EBITDA margin of 40% or higher

The average Quick Ratio of fastest growing SaaS companies (those with a CAGR of over 50%) is 3.9: generating $3.9 in revenue for every $1 lost to revenue churn

As with unit churn, companies with longer contracts (2+ years) tend to report lower annual dollar churn

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Even if a software company is growing at 60% annually, its chances of becoming a multibillion-dollar giant are no better than 50/50

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Account Churn Rate (ACR) = customers at beginning of month – customers at the end of month / customers at beginning of month

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It’s essential to have a point of view that puts a stake in the ground and breaks through the clutter.

As with unit churn, companies with longer contracts (2+ years) tend to report lower annual dollar churn

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