What is churn and why SaaS businesses should care

Let’s be honest: no one likes losing customers. But in the world of subscription businesses, churn—or the rate at which customers cancel their subscriptions—is a reality every company faces. Churn is not just an annoying leak in your revenue bucket; it’s a signal that something deeper is going on.

For any subscription-based business, getting a handle on customer churn is absolutely essential for long-term growth. So, let's break down what churn is, why it matters, and, most importantly, what you can do about it.

What is churn, really?

Churn is the rate at which customers stop subscribing to your product or service. It’s usually expressed as a percentage of your total customer base—like if you start with 1,000 customers and 20 leave, your churn rate for that month is 2%. Simple math, but with some heavy implications.

Churn is like a quiet killer in recurring revenue businesses. The higher the churn, the more you’re losing future revenue, brand loyalty, and opportunities for growth. And the kicker? You might not notice the impact of a high churn rate until it’s really causing problems.

Why churn isn’t just a small issue (Hint: it’s bigger than you think)

When a customer churns, you’re not just losing one monthly fee; you’re losing all the revenue that customer would’ve brought in over their lifetime with your business. Here’s why churn should be at the top of your list:

1. Revenue loss: Each lost customer dents your revenue—not just for today, but for every month they would have stayed. A high churn rate is like watching future income slip through your fingers.
2. Customer lifetime value (LTV): LTV is the total revenue you expect from a customer over the entire time they stick with you. When churn is high, LTV takes a hit, which affects your profitability and makes it harder to plan for growth.
3. Higher acquisition costs: Replacing churned customers isn’t cheap. Acquiring new customers can cost up to five times more than keeping existing ones. High churn means you’re in a never-ending cycle of winning back revenue just to stay even, and that’s money you’d probably rather put toward actual growth.
4. Brand reputation: People talk when they leave, and if they’re unhappy, they really talk. High churn can damage your brand, making it harder to bring in new customers and keep the ones you have.

Types of churn: Voluntary vs. involuntary

Understanding why customers churn is your secret weapon to fighting it. Churn isn’t a monolith—there are two main types:

Voluntary churn

This is when a customer decides they’re done with what you have to offer. They might cancel because they’re not seeing the value, feel the price is a stretch, or simply don’t need what you’re offering anymore. Voluntary churn is like your product and pricing feedback on a platter—it’s often a sign that something could be improved.

Involuntary churn

This is the churn that customers didn’t exactly “choose.” Maybe their payment didn’t go through, or their credit card expired and they forgot to update it. The good news? Involuntary churn is the low-hanging fruit of customer retention—it’s usually preventable with the right tools in place. Automated payment reminders, retries, and an account updater can work wonders in keeping those customers who still want to be customers.

So, tackle voluntary churn by leveling up your product and pricing, and let smart tools take care of involuntary churn for you. It’s all about making it as easy as possible for people to stick around.

The real reasons why customers churn (and what you can do about it)

Churn doesn’t just happen—it’s usually trying to tell you something. Here are some of the main reasons customers walk away, and what you can do to keep them happy and sticking around.

1. Poor product fit: If customers don’t see the value, they’re out the door. Set them up for success with a memorable onboarding experience, clear value messaging, and regular product updates to keep things fresh and useful.
2. Pricing issues: Price can be a dealbreaker if it doesn’t match the value customers feel they’re getting. Reassess your pricing now and then to make sure it feels right, meets customer expectations, and is competitive in your space.
3. Payment failures: Involuntary churn happens a lot because of failed payments. With OpenPay’s smart retry logic and automated dunning, for example, remind customers to update their payment info before they’re dropped, making it a no-brainer to keep their subscription going.
4. Lack of engagement or support: Customers who feel left in the dark or aren’t using the product often end up leaving. Keep the connection strong with regular check-ins, helpful resources, and ongoing support to make sure they’re getting the most out of what you offer.
5. Competitive options: Sometimes a shiny new product catches their eye. Stay ahead by continually adding value with updates and features that make your product stand out and keep customers from looking elsewhere.

How to track your churn rate

Want to know how churn is really affecting you? Here’s a simple way to calculate it:

Customer churn rate = (Customers lost during period / Total customers at start of period) x 100

So, if you start the month with 500 customers and lose 10, your churn rate is 2%.

Track this regularly to spot trends and make changes early. Many SaaS companies keep tabs on churn monthly and yearly, looking at both voluntary and involuntary churn to get a clear view of their retention health.

More key churn metrics to track 

To make sure churn doesn’t catch you off guard, there are some key metrics to keep an eye on. Each one gives you a piece of the puzzle—who’s leaving, what it’s costing, and what you can actually do to turn things around. Let’s break down the must-know metrics so you can stay ahead of the churn game.

1. Revenue churn rate

Revenue churn goes deeper, focusing on the revenue impact of customer churn. It’s a reality check: losing a few small accounts doesn’t hurt much, but losing one big spender can sting. Revenue churn keeps your eye on the prize (your revenue) rather than just the numbers.

Formula:
Revenue churn rate = (MRR lost to churned customers / Total MRR at start of period) x 100

2. Net revenue retention (NRR)

NRR is the metric that shows if your current customers are actually growing in value. Ideally, you want this over 100%, which means you’re not only retaining customers but upselling them. It’s like when a customer upgrades their plan instead of ghosting you—it’s a win-win.

Formula:
NRR = (Starting MRR + Expansion MRR - Churned MRR) / Starting MRR x 100

3. Customer lifetime value (LTV)

Customer lifetime value gives you the big picture of what a customer is worth over their entire journey with you. If your churn is too high, this value drops, which affects profitability and growth. LTV shows the true impact of churn on your business.

Formula:
LTV = (Average revenue per user (ARPU) x Average customer lifetime)

4. Average customer lifetime

This metric tells you, on average, how long customers stick around before they churn. It’s a good health check on customer loyalty, and you need it to calculate LTV. The longer customers stay, the lower your churn rate and the bigger your revenue potential.

Formula:
Average customer lifetime = 1 / Customer churn rate

5. Quick ratio

Think of the quick ratio as your “growth efficiency” score. It compares new revenue (from new customers and expansions) to churned revenue. A quick ratio over 4.0? You’re golden. It means new revenue is outpacing churn, and you’re in a healthy growth zone.

Formula:
Quick ratio = (New MRR + Expansion MRR) / (Contraction MRR + Churned MRR)

How OpenPay cuts churn and boosts customer retention

Here’s how OpenPay goes beyond payments to help businesses grow, slash churn, and keep customers coming back: 

1. Smart payment routing: OpenPay’s advanced routing tech steps in to save the day when a customer’s payment method fails. It’s like having a backup plan that boosts payment success rates and keeps billing hiccups from turning into customer exits, which means less involuntary churn and happier customers.
2. Automated dunning and retries: Instead of letting failed payments happen quietly, OpenPay automatically retries them and sends gentle nudges to customers to update their info. It’s like a friendly reminder that keeps payments flowing and prevents churn before it even starts.
3. AI-powered retention flows: No two businesses are the same, and OpenPay gets that. We offer personalized retention tools—from targeted outreach to loyalty programs—that keep customers engaged and in love with your brand. Think of it as an engagement toolkit tailored just for you.
4. Real-time insights: OpenPay’s analytics offer a full 360-degree view of customer behavior, giving you the power to spot trends, monitor churn, and tackle issues before they hit your bottom line. No more guesswork—just a clear view of who’s leaving, why, and what you can do about it. With clear data and actionable insights, you’re in control of every retention decision.

Churn is a reality for subscription-based businesses, but it doesn’t have to be the bane of your growth. With the right tools and a smart approach to understanding why customers leave, you can keep that customer base thriving. Ready to see what OpenPay can do for your customer retention?