What is Churn Rate?
Churn Rate reflects how many customers discontinue a subscription or relationship with a business over a specific timeframe. It is especially important for SaaS companies and high growth technology firms because recurring revenue is central to their valuations. Churn may be measured on a customer number basis or a revenue basis.
Why is Churn Rate important?
Buyers closely examine churn when assessing the quality of a subscription based business. High churn (e.g., 10–20%) indicates the business is losing customers, raising concerns over product market fit and growth sustainability. However, companies can achieve net revenue retention above 100%, meaning existing customers not only renew but also expand their usage known as “positive churn.” This signals a highly attractive business model and is valued strongly by private equity investors.