The importance of measuring churn: Discover what matters and how it shapes your pricing strategy.

After sharing my growth ceiling calculator, I've received a few questions about churn, so I wanted to dig in a little deeper…

🤔 What's the difference between customer churnChurn RateChurn rate measures the percentage of customers or revenue lost over a given period. Customer churn counts lost accounts; revenue churn measures lost recurring revenue.Read more → and revenue churn?

Customer churn (also known as logo churn) measures the number of customers who cancel their subscriptions or stop using your service. While MRRMonthly Recurring Revenue (MRR)Monthly Recurring Revenue (MRR) is the predictable, normalized monthly revenue a SaaS company earns from active subscriptions. It excludes one-time fees, professional services, and variable overages, providing a clean measure of the subscription business's monthly run rate.Read more → churn measures the actual revenue loss from cancelled subscriptions or downgraded plans.

💡 Here's why tracking both is crucial for understanding the health of your SaaS company.

Let's say you have 100 customers all paying $100 a month, which is $10,000 in MRR. Then 10 customers cancel, which is a 10% customer churn rate. But what if 9 of those 10 were only paying $50 a month and the 10th was paying $100? That's an MRR churn rate of 5.5% ($550). When we calculate MRR churn this way, it's called Gross MRR Churn.

But, MRR churn can sometimes be negative when the revenue generated from expansion (upgrades, add-ons, and cross-sells) exceeds the revenue lost from cancellations or downgrades. Calculating MRR churn, including expansion revenueExpansion RevenueExpansion revenue is additional recurring revenue generated from existing customers through upsells, cross-sells, seat additions, increased usage, or tier upgrades.Read more →, is called net MRR churn, and getting to net negative MRR churn is an excellent position to be in!

For example, let's say you have $10,000 in MRR and you lose 5 customers ($500), but at the same time, your remaining customers upgrade their plans, leading to an additional $10/customer in MRR ($950). Your MRR churn rate would be -4.5%. Even though you lost customers, you still generated more revenue during that period.

💡 The Importance of Churn in Pricing Strategy

Churn can significantly impact a SaaS company's pricing strategy. By monitoring both customer churn and MRR churn (gross and net), you gain a more complete understanding of your business's financial health and can identify areas for improvement.

High churn rates may signal product problems or customer dissatisfaction, while low logo churn and net negative MRR churn can lead to more pricing flexibility and room for expansion.

🧐 You can dig even deeper by analyzing churn across customer segments to identify which segments may require special retention efforts or tailored pricing. This information is crucial for shaping your pricing strategy and driving sustainable revenue growth.

Have you been tracking both customer churn and MRR churn? How have you incorporated churn analysis into your pricing strategy? Drop it in the comments.

also, you can check out the growth ceiling calculator here: Growth Ceiling Calculator

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