👋 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.

Q: What is a good monthly churn for a SaaS business?

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 churn

To come up with a benchmark, I came at it from two directions:

1. I reached out to all the smartest growth people I know and asked them what they consider GOOD and GREAT monthly churn when advising and investing in companies.

2. I asked Patrick Campbell, the founder and CEO of ProfitWell, to dig into his treasure trove of data (13,000 anonymized SaaS companies), to see what monthly churn real companies are seeing.

After hearing from the experts, and looking at Patrick’s data on the top percentile of SaaS companies, clear answers emerged:

• For B2C SaaS: Between 3% and 5% monthly churn is GOOD, and less than 2% is GREAT

• For B2B SMS + Mid-Market: Between 2.5% and 5% is GOOD, and less than 1.5% is GREAT

• For B2B Enterprise: Between 1% and 2% is GOOD, and less than 0.5% is GREAT

Definitions

• B2C SaaS: Subscription products sold to consumers; e.g. Duolingo, Spotify, Grammarly

• B2B SMB + Mid-Market: Subscription products sold primarily to companies with fewer than 1,000 employees, generally charging less than $1K per month for the average customer; e.g. Gusto, Intercom, Airtable, Asana

• B2B Enterprise: Roughly defined as subscription products sold primarily to companies with more than 1,000 employees, generally charging more than $5K per month for the average customer; e.g. Salesforce, Snowflake, Workday, ADP

Disclaimers and advice

This 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.

“You can often attribute month 1-3 churn to be failure of activation/onboarding. This can vary a lot across companies, and even within the same company by channel and funnel.

For businesses with paid user acquisition, the other factor is acquiring the wrong kind of customer. I’ve told more than one company: Hey, if you just cut your paid marketing by half, I bet your churn will go down!”

—ChenLi Wang, ex-growth at Dropbox

As you grow, long-term, expect monthly churn to go down.

“Monthly churn on subscriber base decreases with age of the business as long-haul subs pull that number down.”

—Elena Verna, growth at Netlify, ex- at Miro, SurveyMonkey

In a B2B SaaS business, net revenue retention is a more important metric than monthly churn.

“In SMB/Mid-Market SaaS especially, revenue retention is much more important than customer retention.

For example, in the Shopify ecosystem, SaaS players will inevitably see ‘unavoidable churn’ due to shorter lifespan of smaller merchants. This is inherent to the Shopify model. I’ve seen the expansion for many commerce SaaS products look great as merchants grow/graduate to Shopify Plus. Net revenue retention can look very healthy even with low logo retention in these businesses.”

—Mike Duboe, ex-growth at Stitch Fix, Tilt

For B2C SaaS, you’ll want to focus primarily on cohort-based retention.

“I would only look at monthly churn to see how much you need to maintain new user acquisition to keep up growth. Other than that, you should look at it by cohort basis.”

—Yuriy Timen, ex-growth at Grammarly, Airtable, Canva

Make sure to break churn down into its component parts.

“Churn should always be modeled between (1) intentional and involuntary churn and (2) soft and hard churn:

1. Intentional churn is when a user willingly decides to stop using the product. Where I see companies losing meaningful percentage points is in overlooking involuntary churn—good data instrumentation can flag these events, like credit card declined, forgot password, connection errors.

2. If users stop using the product but are still paying for it (whether annually or monthly recurring), that’s soft churn and should be a concern where value extraction is greater than value generation.”

—Crystal Widjaja, CPO at Kumu, ex-growth at Gojek

And finally, a healthy churn rate is highly dependent on your price point.

“The higher the price point, the lower you should expect the target churn.”

—Adam Grenier, VP Marketing at MasterClass, ex-Uber

This last point is really important, so let’s explore it further.

What is GOOD and GREAT monthly churn, by price point

Why would churn be highly correlated with price? Two reasons:

1. Customer type: The cheaper your product, the smaller the businesses you’re likely selling to—and the smaller the businesses, the more likely they are to go out of business, change their minds, or switch to a competitor.

2. Unit economics: If it’s costing you thousands of dollars to close a deal, you won’t survive if too many of those customers churn. And so companies with a high price point don’t last long if churn is too high.

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:...