What is Net Churn?Net churn is a composite metric representing the net revenue change from existing customers in a period, combining the positive impact of expansion revenue with the negative impact of churned and contracted revenue. Net Churn Rate = (Churned MRR + Contraction MRR – Expansion MRR) / Starting MRR x 100. When
What is Net Churn?
Net churn is a composite metric representing the net revenue change from existing customers in a period, combining the positive impact of expansion revenue with the negative impact of churned and contracted revenue. Net Churn Rate = (Churned MRR + Contraction MRR – Expansion MRR) / Starting MRR x 100. When Expansion MRR exceeds Churned MRR + Contraction MRR, net churn is negative: the existing customer base generates more revenue than it loses, creating a compounding growth effect.
Net Churn vs Gross Churn
Gross churn measures only losses (churn + contraction), ignoring expansion. Net churn measures the net revenue change (losses minus expansion). A company can have 15% gross annual churn but -5% net annual churn if it has 20% annual expansion rate from existing customers. Investors and analysts evaluating SaaS health examine both: gross churn (how well you retain customers at their current value) and net churn (how well the overall customer base grows). High gross churn masked by high expansion is a vulnerability: if expansion slows (as it often does during economic downturns), the underlying gross churn becomes exposed as net churn turns positive.
Frequently Asked Questions
How do I calculate net churn rate?
Monthly net churn rate calculation: (Churned MRR + Contraction MRR – Expansion MRR) / Starting MRR x 100. Example: starting MRR $1M, churned MRR $30K, contraction MRR $10K, expansion MRR $60K: net churn = ($30K + $10K – $60K) / $1M x 100 = -2% (negative 2% net monthly churn, meaning the existing base grew 2% this month despite some churn). Annual net churn: multiply monthly net churn rate by 12 for a rough annual figure, or calculate directly using annual period data for more accuracy.
What net churn target should a SaaS company pursue?
Net churn targets by segment: enterprise SaaS: target net churn of -10% to -20% annually (NRR 110-120%). Mid-market SaaS: target net churn of -5% to -15% annually (NRR 105-115%). SMB SaaS: break-even net churn (NRR around 100%) is often good, as higher SMB gross churn makes negative net churn harder to achieve. Below-benchmark net churn indicates either excessive gross churn, insufficient expansion motion, or both: diagnose which is the primary driver before investing in solutions.