Customer Churn

The four types of SaaS churn and how to calculate them

By
Alex Atkins
August 31, 2023
5 min read

Customer churn is a term often used in the SaaS world, but what does it actually mean?

Simply put, churn is the rate at which customers are lost. These are customers that have canceled your service and aren’t coming back. It can be calculated for individual customers (B2C) or for an entire company (B2B). Four different types of churn are commonly measured: customer churn, revenue churn, gross churn rate, and net churn rate. Let's take a closer look at each type.

Customer churn rate calculation

Customer Churn

Customer churn is the most commonly used type of churn. It is the percentage of customers that stopped using your company's products or services during a specific time frame. You can calculate your customer churn rate by dividing the number of customers you lost during that period — say a quarter — by the number of customers you had at the beginning of that period. 

Let’s pretend for a moment that you work on the growth team at SaaS.io, a new (you guessed it) SaaS startup. Over the last few months, SaaS.io has continued to grow hand over fist with little to no customer churn. However, customer acquisition has begun to slow, and your boss is asking you to calculate the customer churn rate in October. This equation is relatively straightforward. At the beginning of October, Saas.io had 54 customers. However, by the end of the month, two had churned. That means your customer churn rate in the month of October was 3.7%.

1. Total customers at the beginning of a period: 54

2. Number of customers lost in period: 2

3. Customer Churn Rate = (2/54)*100 = 3.7% (that is a great number, by the way)

Revenue churn rate calculation

Revenue Churn

Revenue churn is similar to customer churn, but instead of measuring customers leaving the company, it measures the amount of revenue lost due to customers who have left or downgraded their plans. To calculate revenue churn, divide the total amount of revenue lost in a certain period by the total revenue at the beginning of that period. 

If we head back to our SaaS.io example, it’s important to note that the October revenue churn is much scarier than the customer churn. Yes, only two customers churned, meaning there was a 3.7% customer churn rate. However, one of those customers (Customer 2) accounted for 11% of MRR (monthly recurring revenue). Customer 1 generated only $6,000 in MRR, whereas Customer 2 generated $22,000 MRR. That means that at the beginning of October, SaaS.io’s MRR was $200,000. By the end of October, the revenue churn was .14.

1. Total revenue at the beginning of a period: $200,000

2. Net revenue lost in period: $6,000 + $22,000 = $28,000

3. Revenue Churn Rate = $28,000/$200,000 = .14

Gross MRR churn equation

Gross Churn Rate

The Gross churn rate takes into account both customer and revenue churn. It measures the total number of customers and revenue lost in a certain period, divided by the total number of customers and revenue at the beginning. This gives an overall picture of how much business is lost in a given time frame.

If we apply this to SaaS.io, the MRR for October was $200,000, and users canceled $28,000 worth of contracts. That means the gross churn rate will be 14%

1. Total revenue at the beginning of a period: $200,000

2. Net revenue lost in period: $6,000 + $22,000 = $28,000

3. Gross Churn Rate = ($28,000/$200,000) x 100% = 14%

Net churn rate calculation

Net Churn Rate

Net churn rate considers both customer and revenue churn. However, it also includes new customers and expansion revenue acquired in a certain period. Expansion revenue is the additional revenue you generate from existing customers through upsells, cross-sells, or add-ons. That’s why net revenue churn gives an overall picture of how much business is being gained or lost in a given time frame. 

A month has passed since those two customers, and 14% of gross MRR was lost. Saas.io is currently at $172,000 MRR in November, as no additional sales have been made. Unfortunately, November has also seen $12,000 in contract losses. Luckily for Saas.io, a few existing customers have upgraded their plans, generating an additional $10,000 in revenue. Your boss asks you what the net churn rate for November is. First, you must subtract the customer upgrade revenue from the revenue lost in downgrades and cancellations. Then, divide that number by the revenue at the beginning of November.

1. Total revenue at the beginning of a period: $172,000

2. Net revenue lost in period: $12,000 - $10,000 = $2,000

3. Net Churn Rate = $2,000/$172,000 = 1.1%

Leaky bucket equation

Leaky Bucket Equation

At the beginning of this post, we noted that four types of churn could be measured. That isn’t entirely true, so here’s a bit of a bonus round. SaaS angel investor, Dave Kellogg argues that the leaky bucket equation “should always be the first four lines of any SaaS company’s financial statements.” Kellogg continues, “I conceptualize SaaS companies as leaky buckets full of annual recurring revenue (ARR). Every time period, the sales organization pours more ARR into the bucket, and the customer success (CS) organization tries to prevent water from leaking out”.

Kellogg defines the leaky bucket equation as “Starting ARR + new ARR - churn ARR = ending ARR”.

If we apply this to our Saas.io example, we can determine that the starting ARR in the fourth quarter (Q4) of 2022 was roughly $400,000. The new ARR in Q4 ‘22 was $56,000, and the Churn ARR in that same time period was $45,000. In other words:

1. Total starting ARR: $400,000

2. New ARR: $56,000 & Churn ARR: $45,000

3. Ending ARR = $400,000 + $54,000 - $45,000 = $409,000

Churn is an important metric to track for any SaaS company, as it can be used to identify trends, measure loyalty, and assess the effectiveness of customer retention strategies. Calculating churn rates can help companies identify which customers are more likely to leave and which types of customers are the most valuable. By understanding churn, businesses can take steps to improve customer retention and keep their business running smoothly.

Similar articles

View all
Software

STURDY.AI ANNOUNCES $6M SEED ROUND

Joel Passen
April 1, 2025
5 min read

Sturdy's Customer Intelligence Platform performs real-time revenue threat root cause analysis, and delivers cross-functional insights to the teams and systems to mitigate churn.

Portland, OR — April 1, 2025 — Sturdy.ai, a pioneer in AI-powered customer intelligence, today announced it has raised $6M in Series Seed funding. Voyager Capital led this round, with participation from Fortson VC as well as existing investor, Grotech Ventures. The funds will be used to deepen Sturdy’s AI capabilities, expand integrations with customer data silos, and grow its go-to-market and engineering teams.

Modern Teams Need Actionable Intelligence to Protect and Grow Revenue

With customer expectations higher than ever and retention under pressure, the need for proactive, AI-driven revenue insights has never been more urgent. According to industry data, reducing churn by just 5% can increase profits by up to 95%. Enterprises have spent millions on building silos of applications to get closer to their customers and create active communication channels in the hope of mitigating churn risk early. Yet, this has failed to provide the proactive warning signals required. Sturdy closes the gap by seeing across these silos for a unified view of customer communication.

“We’re creating an AI-first intelligent interface for all things customer. This allows Sturdy to provide an almost magical understanding of every customer interaction across every data silo,” said Steve Hazelton, CEO and co-founder of Sturdy.ai. “This funding enables us to move faster to empower teams to stay ahead of risk and unlock new revenue opportunities.”

Investors Bet Big on AI-Powered Revenue Threat Detection

The funding round attracted a strong syndicate of investors aligned on Sturdy’s vision for a more innovative, AI-native approach to revenue intelligence. Voyager Capital, known for backing category-defining SaaS platforms, led the round, with General Partner Diane Fraiman joining Sturdy's board.

“Sturdy is tackling one of the most urgent and overlooked problems in enterprise software—how to extract proactive insights from the flood of daily customer interactions,” said Diane Fraiman, Managing Director of Voyager Capital. “Retention has become a critical topic in boardrooms. We believe that every business will have a system of intelligence in the next 3 years. Sturdy’s platform is positioned to become essential infrastructure for any company serious about protecting and growing revenues while truly putting their customers first.”

“Sturdy is one of the most powerful and immediate applications of AI and natural language processing we’ve seen,” said Thomas O’Keefe, CEO of Solo LLC. “At both Solo and previously at Syntrio, it has delivered instant value—surfacing proactive, actionable customer insights and driving measurable improvements in retention.”

About Voyager

Voyager Capital is a leading West Coast early-stage venture firm, providing entrepreneurs with the resources, experience, and connections to build successful companies for today’s modern economy. Voyager invests primarily in B2B technology companies, including AI-driven business solutions, software-driven hardware, sustainable agriculture, and supply chain. The firm's domain expertise, go-to-market, and team-building resources are proven to help build market leaders. Voyager Capital has over $550 million under management with offices and resources in Seattle, Portland, Vancouver, and Calgary. 

About Fortson VC

Fortson VC is a seed-stage venture firm based in the Pacific Northwest, built for exceptionally rare founders who are pushing the boundaries of what’s possible.  Led by Cole Younger, Fortson brings over two decades of early-stage investing experience and a disciplined approach grounded in authenticity, grit, and courage.  While driven by curiosity, our primary focus is B2B software and the technological frontier around it—the infrastructure, intelligence, and automation shaping the future of how businesses create value.

About Grotech Ventures

Founded in 1984, Grotech Ventures is a leading early investor in high-potential technology companies. Grotech seeks innovative, early-stage investments across the technology landscape and continues to invest and add value throughout the life cycle of each portfolio company. The firm has a strong combination of financial backing, industry relationships, and deep domain and operational expertise to accelerate growth. With more than $1.0 billion in committed capital, Grotech supports early-stage companies through investments starting as small as $500,000. For more information, visit http://www.grotech.com.

About Sturdy

Founded in 2020, Sturdy is an AI-forward autonomous Customer Intelligence platform that proactively identifies churn risks across all customer-facing silos. Sturdy analyzes unstructured customer interactions—emails, calls, support tickets, chats, and more—discovering revenue threats, pinpointing root causes, and delivering cross-functional insights in real time. Sturdy has analyzed billions of customer interactions, giving it one of the largest proprietary datasets in the category and enabling its models to surface insights faster and more accurately than competitors. At a time when customer retention is a top priority for every business, Sturdy turns the noise of customer conversations into a strategic advantage.

For more information, visit www.sturdy.ai or reach out to Joel Passen at joel@sturdy.ai

Integrations

Product Update! Sturdy now integrates with Jira

Joel Passen
March 10, 2025
5 min read

We’re making it easier than ever to turn customer feedback into action while saving businesses hundreds of thousands of dollars per year. With Sturdy’s new Jira Connect, any AI-powered Signal in Sturdy can be automatically logged in Jira—helping teams capture, prioritize, and resolve issues faster than ever.

Sturdy for Jira is a Game Changer

Every team needs to know more about their customers. 

Turn customer feedback into valuable Jira content automatically. Sturdy’s AI accurately detects feature requests, bug reports, and other critical product feedback. Customizable agents then deliver this context-rich intelligence to a configurable staging area in Jira with all relevant user and account details, such as segment, ARR, and more. The content is objectively summarized automatically. From there, assigning it to an epic, task, sprint, or release is just one click.

Productivity Gains that Move the Needle

Businesses are unknowingly spending hundreds of thousands of dollars per year on something as simple as manually logging Jira issues. A single customer-facing rep wastes nearly 87 hours annually on repetitive data entry—scaling up to a staggering $354,200 per year for a team of 100 reps. By integrating Sturdy’s AI-driven automation, businesses can reclaim thousands of hours, improve productivity, and reinvest those savings into growth and innovation—all while ensuring more accurate, real-time data flows into Jira effortlessly.

Align product teams with customer reality.

By centralizing AI-powered insights in Jira, Sturdy ensures that product and engineering teams get a complete, objective picture of what’s working, what’s broken, and what needs to be built—without relying on anecdotal feedback. Customer-reported issues appear in Jira moments after they happen, ensuring your product and engineering teams stay ahead of emerging trends and critical bugs—without the lag of traditional reporting.

Effortless setup, immediate impact.

Sturdy’s turnkey integration takes minutes to configure. Once connected, your team gains instant access to context-rich, structured feedback—helping you make faster, data-driven decisions that improve customer satisfaction.

Want to get started? Click the 'Schedule Demo' button at the top of the page.

Integrations

Product Update! Sturdy Now Analyzes Customer Slack Channels

Joel Passen
March 3, 2025
5 min read

We’re making it easier than ever for teams to tap into the power of customer conversations. With this integration, Sturdy’s AI-driven insights—trained to spot key behaviors and trends unique to your business—are now right where your team works. That means more proactive decisions, better collaboration, and a serious productivity boost.

Here’s how Sturdy works with Slack.

  • Get the right insights, right in Slack. Sturdy delivers AI-powered Signals where your team already works, flagging risks, expansion opportunities, and other key moments in real-time. No more digging through conversations—just actionable insights when you need them.

  • Stay on top of every conversation. If your team works asynchronously in Slack channels, it’s easy for important feedback to get lost. Sturdy keeps you ahead by surfacing critical insights before they slip through the cracks.

  • Act fast, not after the fact. Whether it’s a service risk, a feature request, or a potential upsell, Sturdy helps teams spot and respond to what matters—without disrupting their workflow.

Seamless sync with your tools. Sturdy doesn’t just stop at Slack. Insights discovered in customer Slack channels automatically flow into Jira, CSPs, CRMs, and other systems, ensuring the right teams get the right info—without extra work.

How many customers will you have to lose before you try Sturdy?

Schedule Demo
A blue and gray logo with a black background
A number of different types of labels on a white backgroundA white background with a red line and a white background with a red line andA sign that says executive change and contact request
A white background with a red line and a blue lineA number of different types of logos on a white backgroundA pie chart with the percentage of customer confusion and unhappy
A number of graphs on a white background