Questions

Is 6% monthly customer churn acceptable for a $5M ARR SaaS business? What effect on valuation does a high churn have?

Net MRR churn is 1.2% Gross MRR churn is 5% CAGR is 80% for last 3 years LTV is $4,000, ARPA is $250

2answers

Good question. 6% churn per month on $5M is $300,000. Seems like a lot of money to me without even knowing your cost of customer acquisition. It's like trying to fill a leaking bucket. A little uptick in churn rate will have a HUGE NEGATIVE impact on your valuation: you reduce your LTV and ARPA while you have to increase your total sales and marketing costs just to stay even.

I've done built a lot of financial models and analyzed many recurring revenue businesses ranging from SaaS, B2C, B2B, telephone companies, mutual funds, retirement plans, Netflix, LinkedIn, and cable TV among others.

Set up a call with me and I can walk you through how churn rates, valuation, and other variables tie together in a financial model.


Answered 2 years ago

There are many factors to consider, but yes I would consider 6% as a high churn for any SaaS solution. I would focus on finding ways to retain the current user base and narrow down the issue.

Other things you could do is improve your nurture materials such as nurture emails , better user experience etc.


Answered a year ago

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