Churn is one of the most important metrics for companies to track. It's a measure of how many customers leave your brand within a certain time period.
High churn can be disastrous for a company, while low churn indicates that customers are happy with their product and/or service.
Only 1 out of 26 unhappy customers complain; the rest simply churn. That's why paying attention to this metric is so important — it can tell you important things about shortcomings in your customer support setup.
There are many factors that contribute to churn, and it's important to understand them all — including the average churn rate for your industry — if you want to keep customers and grow your business. In this article, we'll cover what a good churn rate is for SaaS companies to aim for and what typical churn rates look like across industries.Â
Why is churn an important metric for companies to track?
Churn is an important metric for companies to track as it provides a snapshot of customer loyalty and reveals how satisfied customers are with their service.
Many businesses rely on customer retention as a source of revenue, and tracking churn allows them to identify trends within the customer base so they can take proactive measures to address any issues that may be reducing satisfaction.
Knowing the rate of churn helps companies spot problems in the user experience or areas where there is a lack of engagement, ultimately allowing them to both retain existing customers and attract new ones.
It is essential for businesses to stay informed about their churn rate and regularly assess how their performance could be improved, especially in an economic recession where retaining your customers is more important than ever.
What causes customer churn?
There are many reasons why customers may leave a business, including poor customer experience, lack of product innovation, or high prices. Understanding the underlying causes of churn can help companies take steps to address these issues and keep their customers happy.
Poor Service ExperienceÂ
Customer service is an integral part of any successful business, and poor service experiences can be one of the main reasons for customer churn. If your customers feel like their concerns are not being addressed in a timely manner, they may eventually decide to take their business elsewhere.
To prevent this from happening, it's important to ensure that your customer service team is well-trained and equipped with all the necessary tools to provide excellent customer service. Modern customer support platforms now offer capabilities like session replay, cobrowsing, and AI-powered guidance to help support teams resolve issues faster and more effectively.
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Actionable tip: examine your entire support workflow and plug any gaps you find. Consider whether your team can actually see what customers are experiencing in real-time, and whether you have tools that can guide customers visually through complex processes rather than relying on lengthy explanations.
Lack of EngagementÂ
Your customers need to feel like they're an important part of your brand in order to stay loyal — and this means actively engaging with them on a regular basis. Whether it's through email newsletters or social media posts, make sure you're providing valuable content that will keep them interested in your brand, provide real value and encourage them to stick around longer.
Actionable tip:Â remember to work closely with your marketing team to create content your customers are asking for. Whether that's white papers, FAQs or blog posts, taking an active involvement even if you aren't a marketer yourself can really up engagement.
Pricing IssuesÂ
The cost of your product or service can also be a major factor in customer churn. If customers find that the price is too high compared to what they're getting from your competitors, they may decide to switch over.
To prevent this, it's important to assess the market and ensure that you're offering competitive pricing. Additionally, consider implementing tiered pricing to give customers more options and promote loyalty.
Actionable tip: do your homework on the state of your industry — especially in terms of pricing. Frequently check your competitors' pricing pages to see how the needle is moving and adjust accordingly.
Competitor OffersÂ
Competition is always tough in any industry, especially in today's digital age, where there are countless businesses competing for attention online. Make sure you know what offers your competitors are offering so that you can stay ahead of them by constantly innovating and improving upon what already exists — whether it's new products or services, better pricing models, or improved customer service processes.
Actionable tip:Â monitor your competitors' social media pages to see if they're offering discounts or other incentives to sign up. Then do that, but better.
Customer needs are unmet
Finally, customers may also leave if their needs are not being met by your product or service. If your product fails to deliver the features they need or isn't meeting their expectations, they may decide that it's time to move on and find another solution.
To prevent this, make sure you're regularly taking feedback from your customers and making improvements to your product based on their suggestions. This will help ensure that you're always meeting their needs, which in turn can help reduce churn rates.
Actionable tip:Â Send out CSAT, CESÂ and NPS survey to gauge the mood. Solicit and then listen to customer feedback and make sure you communicate this feedback company-wide.
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Economic Impact on Churn (2024-2025)
The economic environment of 2024-2025 has fundamentally altered churn dynamics. SaaS spending per employee increased 27% to $8,700 in 2024 (Cledara), while SaaS inflation runs 4x higher than standard market inflation (Vertice). This cost pressure forces companies to scrutinize software investments more carefully.
However, B2B SaaS new sales were down only 3.3% in Q4 2024, while churn rates simultaneously improved (Vitally), suggesting that existing customers demonstrate stronger loyalty to proven solutions.
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What churn rate should companies typically aim for?
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Ideally, SaaS companies should aim for annual churn rates of no more than 5% if they want to grow sustainably in 2025's competitive environment. However, acceptable targets vary significantly by company stage and customer segment - with early-stage companies seeing higher churn rates that improve as they mature and optimize their product-market fit.
However, these aggregated numbers mask significant variations by company maturity:
- Early-stage companies (<$300K ARR): 6.5% monthly customer churn
- Growth stage ($1M-$3M ARR): 3.7% monthly customer churn Â
- Scale stage ($8M+ ARR): 3.1% monthly customer churn
- Large scale ($15M+ ARR): 1.8% monthly net MRR churn
It's crucial for companies to note that what we're discussed here are annual churn rates, not monthly churn rates. Monthly churn rates compound, so while a monthly churn rate of 10%Â may not appear all too bad at first glance, it actually means that you're replacing what equates to your customer base every ten months!
In the chart above, we'll done the math so you can see how monthly churn rates and annual churn rates are correlated. As you can see, an average monthly churn rate of 10%Â means that annual yearly churn is closer to 72%! So if the goal is to maintain your annual churn rate at 5%, your monthly churn should only be around 0.5%.
Importantly, contract length significantly impacts these numbers. Annual contracts demonstrate 8.5% annual churn versus 16% for month-to-month agreements. This means companies should prioritize annual billing cycles not just for cash flow benefits, but as a core retention strategy.
The other thing to keep in mind is that there are other factors that contribute to a business's average churn rate, including the industry it operates in and the quality of its customer experience. So, what may be a high churn rate for one business may be average for another.
It's important to track your average churn rate over time and make adjustments as needed to ensure customer satisfaction and loyalty.
Reduce churn by increasing CSAT and decreasing time-to-resolution.
With Fullview, you can start a zero-download cobrowsing call with users, take control of their screen, and guide them to resolution without all the back-and-forth over email and chat. Click the button below to learn how cobrowsing can help you increase CSAT and reduce time-to-resolution.
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How to calculate churn
So, how can you calculate the churn rate at your company?
To calculate churn, you'll need to use this formula:
(Lost Customers/Total Customers during the start of a specific time period) X 100
Take the number of lost customers you have had during a specific time period and divide it by the total customers at the start of the time period and times that number by 100.
For example, if you have 1000 customers and 10 of them left in a month, then your average monthly churn rate is 1%. That would translate to an average annual churn rate of about 12%, which is close to the annual median logo churn rate for SaaSÂ companies according to KBMC.
You can also calculate churn in terms of:
- Net customer churn
- Net revenue churn
If you want a detailed breakdown of how to calculate churn and the pros and cons of different methods, check out Customer Churn In SaaS: What It Is And All The Different Ways To Calculate It.
Average churn rate by industry:Â SaaS, retail, healthcare &Â more.
As we mentioned before, average churn rates vary across industries, so it's important to understand the average churn rate for your particular industry when evaluating the success of your customer experience.
Here's an average breakdown of churn rates by industry (these figures span 2020 -2025 depending on when the latest research was conducted):
- Financial/credit - 25%
- Online retail - 22%
- Big box electronics - 11%
- SaaS companies - 13%
- Digital media and entertainment - 6%
- Healthcare - 6%
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The Role of AI in Modern Churn Prevention
Artificial intelligence has revolutionized churn management capabilities. 46% of surveyed SaaS companies now use churn prediction models, with advanced implementations achieving 88.6% precision in churn prediction. Companies leveraging AI for churn prevention report 10-15% churn reduction over 18 months.The customer journey analytics market grew from $14.54B in 2024 to $17.35B in 2025, reflecting increased investment in sophisticated retention technologies. Modern churn prevention now incorporates behavioral signals, engagement anomaly detection, and sentiment analysis across all customer touchpoints.
Actionable tip: Implement churn prediction models that go beyond usage metrics to include support interaction sentiment, feature adoption patterns, and engagement frequency changes. Early warning systems can identify at-risk customers 60-90 days before they actually churn.
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How can companies reduce customer churn?
We've already covered 10 ways to reduce customer churn in a previous article.
The main strategies to focus on are providing excellent customer service, incentivizing customers to stay, and creating comprehensive customer experiences.
It's also important to ensure that your business is listening to feedback from existing customers. This allows you to identify unspoken complaints or issues with the product before they escalate into customers churning.
Proactive support can be particularly helpful in this regard because it allows you to identify and address customer issues before they even realize there's a problem. This means that customers can be reassured that their concerns are being heard and addressed, reducing the likelihood of them churning.
Implement Visual Customer Support: Traditional support tickets and phone calls often fail to capture the full context of customer issues. Tools that allow support teams to see exactly what customers are seeing—or even guide them visually through solutions—can dramatically reduce resolution time and improve satisfaction. This is particularly important for SaaS companies where user onboarding and feature adoption directly impact retention.
Wrapping It Up
Churn rate is an important metric that businesses must pay attention to in order to ensure customer satisfaction and loyalty. For SaaS companies looking to improve retention in 2025, the focus should be on eliminating friction in the customer experience. Whether through better onboarding, proactive support, or tools that help customers succeed with your product faster, the companies that make it easiest for customers to achieve their goals will see the lowest churn rates in an increasingly competitive market.
Companies should strive to reduce their average churn rate by investing in customer service, incentivizing customers to stay, and creating comprehensive and cohesive customer experiences. Taking feedback from existing customers can also help identify potential issues before they escalate into major problems and cause customers to churn.
For SaaS companies looking to improve retention in 2025, the focus should be on eliminating friction in the customer experience. Whether through better onboarding, proactive support, or tools that help customers succeed with your product faster, the companies that make it easiest for customers to achieve their goals will see the lowest churn rates in an increasingly competitive market.
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Frequently asked questions:
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My SaaS company has 8% annual churn - is this good or bad?
It depends on your company stage and customer segment. For early-stage companies (<$300K ARR), 8% annual churn is quite good. For scale-stage companies ($8M+ ARR), you'd want to aim lower, around 3-5%. The key is comparing yourself to similar companies in your stage and market, not just industry averages.
Should I focus on logo churn or revenue churn?
Both matter, but for different reasons. Logo churn shows customer satisfaction and product-market fit. Revenue churn shows business impact and growth sustainability. If your logo churn is high but revenue churn is low, you're losing small customers but retaining/expanding large ones. If the reverse is true, you may have a pricing or value delivery problem with higher-tier customers.
What's the difference between gross and net churn?
Gross churn only measures customers/revenue lost. Net churn factors in expansion revenue from existing customers. You can actually have negative net revenue churn if your existing customers expand their usage enough to offset losses from churned customers. This is the holy grail for SaaS businesses.
How quickly should I expect to see churn improvements after implementing changes?
Churn reduction typically takes 3-6 months to show meaningful results. This is because many customers who churn in Month 1 of your improvements were already on the path to churn before you made changes. Focus on leading indicators like engagement scores, support ticket sentiment, and time-to-value metrics for earlier signals.
My churn spikes in certain months - is this normal?
Yes, seasonal patterns are common. B2B SaaS often sees higher churn in December (budget cuts) and January (new priorities). Consumer apps might see spikes after holiday promotions end. The key is identifying your patterns and planning retention campaigns accordingly.
What churn rate should trigger "red alert" mode?
If your monthly churn rate exceeds 7% consistently, or if you see a 50%+ increase month-over-month, you need immediate action. Also watch for early warning signs: if Month 1 churn for new customers exceeds 15%, your onboarding process needs urgent attention.
Do I need expensive churn prediction software?
Not initially. Start with basic health scoring using your existing data: login frequency, feature usage, support tickets, and payment history. Many companies get 70% of the benefit from simple alerts like "customer hasn't logged in for 14 days" or "support ticket volume doubled this month."
What's the minimum viable tech stack for churn prevention?
You need: 1) A way to track customer health scores, 2) Automated alerts for at-risk customers, 3) A process for proactive outreach, and 4) Tools to see where customers struggle (analytics, session replay, or customer support tools). This can be as simple as a spreadsheet + email alerts for very small companies.
How accurate are AI churn prediction models?
The best models achieve 85-90% accuracy, but implementation quality matters more than the algorithm. A simple model with clean data and good follow-up processes will outperform a sophisticated model that's poorly implemented. Start simple and add complexity as you prove ROI.
Who should own churn reduction in my company?
It depends on your size. In small companies (<50 people), it's often the founder or head of growth. Medium companies typically assign it to Customer Success. Larger companies might have dedicated retention teams. The key is ensuring one person is accountable for the metric and has authority to coordinate across product, support, and sales teams.
How often should I review churn metrics?
Monthly for overall trends, weekly for early warning indicators, and daily for new customer onboarding metrics. Quarterly deep-dives to analyze churn reasons and update prevention strategies. Don't over-optimize for daily fluctuations - focus on trends.
What should I do if my team disagrees on what's causing churn?
Implement exit interviews or churn surveys to get direct customer feedback. Use session replay tools to see where customers actually struggle versus where you think they struggle. Data beats opinions - let customer behavior and feedback guide your priorities.
Should I accept higher churn if it means faster growth?
Generally no, especially in B2B SaaS. High churn indicates poor product-market fit or targeting wrong customers. However, if you're in a land-and-expand model and losing small customers while growing large ones, the tradeoff might make sense short-term. Monitor both logo and revenue churn closely.
How do I handle churn caused by customers being acquired or going out of business?
These are typically counted as involuntary churn and are largely outside your control. However, you can sometimes prevent acquisition-related churn by building relationships with the acquiring company or ensuring your solution is too embedded to easily replace. For companies at risk of failure, consider offering temporary discounts to help them through difficult periods.
Is it worth trying to save every customer?
No. Some customers are poor fits and will never be successful or profitable. Focus your retention efforts on customers with high lifetime value potential or those who are good fits but experiencing solvable problems. Let poor-fit customers churn gracefully and learn from why they weren't a good fit to improve targeting.
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