Customer churn, also called logo churn, measures the rate at which a SaaS or subscription company is losing customers. Although acquiring new customers is a core goal of any SaaS company, ensuring customers renew their subscriptions is arguably just as (if not more) important.
There are two types of churn for SaaS companies: logo churn and revenue churn. Logo churn counts the number of customers that cancel or don’t renew their subscriptions in a measurable period.
How to calculate logo churn
To calculate logo churn, you can add together the count of customers that unsubscribe, or do not renew their subscription, and divide it by the number of customers you had on the first day of your measurement period.
The formula to calculate customer (logo) churn is as follows: Logo churn = # of customers lost in a given period / # of customers at the beginning of period.
How to track and analyze logo churn
Your logo churn rate will give unique insight into how well you are meeting the needs of your customers. To maximize revenue, you must take steps to ensure that customers are satisfied and happy with your software and their subscription. No matter how quickly you are gaining customers, a high churn rate could ultimately mean you see no long-term sustainable growth.
Note: Many SaaS companies with a subscription business model quickly outgrow spreadsheets and manual process, particularly for tracking and analyzing logo churn. This leads many SaaS companies to rely on cloud accounting solutions that include a SaaS metrics dashboard to automate the customer (logo) churn calculation with real-time data.
If your logo churn rate is high, there are several areas in which you can consider investing more money to reverse this.
- Develop a strong customer success process
Creating an enjoyable and easy user experience is key to minimizing logo churn. This is especially important if your software is complicated or hard to use without an introduction or training. Making sure that your customers are efficiently using your product will go a long way to helping them want to renew their subscriptions.
- Maximize sales and marketing spend efficiency
A high logo churn rate could signal a misalignment between your product and your target audience, which may be resolved with refinements to your marketing and sales efforts. If your product is targeted at a more general audience, you might want to look at how you are reaching those potential customers in the “sales funnel,” beginning with your top-of-funnel (TOFU) efforts.
Are potential customers seeing your messaging in the right marketing channels where they will be exposed to it? Is your marketing clearly communicating what your product will deliver to your customers and address their needs? Are your sales and marketing teams aligned on defining the customer need and how the products will address it. If you spend more money to learn more about prospective customers and help them learn more about your product, you should see a positive impact on your logo churn rate.
- Invest in research and development (R&D)
Improving your software requires frequent updates, so that your product is constantly evolving to meet customer needs. Improving and expanding your product’s feature set will increase the chances your customers remain loyal to your product, thereby lowering logo churn.
Understanding revenue recognition requirements
Growing SaaS companies generating revenue from subscriptions often see exponential complexity increases in meeting subscription revenue accounting requirements, particularly as their customer count increases. This leads many SaaS companies to automate revenue recognition as part of their overall subscription revenue accounting process.
