Lenny's Newsletter - What is good monthly churn
This is a peek at today’s subscriber-only post. Subscribe to get access to this full issue—and very issue from the past three years. What is good monthly churnBenchmarks for good and great monthly churn, broken down by segment and price point👋 Hey, I’m Lenny and welcome to a 🔒 subscriber-only edition 🔒 of my weekly newsletter. Each week I tackle reader questions about product, growth, working with humans, and anything else that’s stressing you out about work. Send me your questions and in return I’ll humbly offer actionable real-talk advice.
Look, I made a meme. You could even argue that churn is both a leading cause of business death and the biggest tax on your growth 🤣 As Ben points out, churn is unavoidable. So what to do? Beyond constantly working to reduce churn, it’s essential that you understand what healthy monthly churn looks like for your type of business—so that you know if you’re on track for 🚀 or ☠️ Though you should generally spend your time focusing on cohort retention and net revenue retention instead of monthly churn—because monthly churn blends new and existing users and hides what’s really going on long-term—it’s still a powerful metric, because it’s quick (you don’t have to wait for cohort curves to flatten), it’s easy (every dashboard has this), and, most interestingly, it tells you how many new users you need to bring in each month in order to continue to grow. Losing 2% of users each month? Grow by over 2% and you’re 📈 Depressingly, your monthly churn stat also tells you how quickly you’ll churn through your users if you do nothing. For example, with an 8% monthly churn, you’ll lose nearly all your users in about a year 😵💫 Even with a 4% monthly churn, you’re rebuilding your user base from scratch every two years. This is why SaaS businesses with revenue expansion (i.e. negative churn) are so sought-after. But again, churn is normal and unavoidable. Step one is understanding what healthy (vs. deathly) churn looks like for your business. What is GOOD and GREAT monthly churnTo come up with a benchmark, I came at it from two directions:
After hearing from the experts, and looking at Patrick’s data on the top percentile of SaaS companies, clear answers emerged:
Definitions
Disclaimers and adviceThis metric is looking at the steady state of churn. New user churn in the first month is always the steepest, normally ranges from 5% to 50%, and happens for a number of reasons.
As you grow, long-term, expect monthly churn to go down.
In a B2B SaaS business, net revenue retention is a more important metric than monthly churn.
For B2C SaaS, you’ll want to focus primarily on cohort-based retention.
Make sure to break churn down into its component parts.
And finally, a healthy churn rate is highly dependent on your price point.
This last point is really important, so let’s explore it further. What is GOOD and GREAT monthly churn, by price pointWhy would churn be highly correlated with price? Two reasons:
To understand healthy monthly churn by price point (i.e. how much you charge each customer on average per month), Patrick sliced and diced the data, and with input from the experts, this is what we found:... Subscribe to Lenny's Newsletter to read the rest.Become a paying subscriber of Lenny's Newsletter to get access to this post and other subscriber-only content. A subscription gets you:
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