churn rate is the percentage of customers who stop paying for a subscription over a certain period, usually either a month or a year 📉

If Netflix has a 30% yearly churn rate, that means that 30% of customers who are subscribed at the beginning of the year will stop paying by the end of the year.

High churn rate means losing lots of customers and revenue.

Imagine a bucket of water with a leak – although only a bit of water drips out through the hole at any given time, eventually all the water will leak out! 🚤💦

Low churn rate can indicate customer satisfaction and product value 😊

Happy customers who enjoy a service tend to stick around longer than unhappy customers who are not getting value from it.

Lower churn rates can also mean more stable and predictable revenue, which generally make it easier to grow. 💰

For example, Netflix’s yearly churn rate is in fact 30%, while Hulu’s yearly churn rate is 58%!

That means that if Hulu has $10B in ARR and they don’t get any new customers to sign up, they will only have $4.2B in ARR a year from now – less than half of what they started with!

In order to even keep the same ARR next year ($10B), they need to add a whopping $5.8B in ARR in a year!

That’s why high churn rates can make it hard for SaaS companies to grow 😬