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Churn Rate for SaaS Companies
I like talking to VC’s when I am not raising money :) The conversation is open, tension-free and we both have our guards down. The other day I had an interesting conversation with a team member of a top notch VC firm and learnt that Churn Rate is one of the most important metric they look at to gauge performance of a SaaS company. Even before monthly recurring revenue (mrr) and the conversion funnel.
Churn rate is the rate at which your customers are leaving every month.
A high churn rate means that your customers are not satisfied with your product - this could be for various reasons (bugs, lack of features, performance, customer services etc.). Before you spend a lot of money on marketing you need to know why customers are leaving and how you can fix that. It is like having a hole in your bucket. Would you fix the hole first or pour more water in it?
Ideal churn rate for a SaaS company should be between 3%-5%. Anything more is a red flag.
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