Let's churn it up 😉
Breaking down the different ways to calculate churn
Happy Friday Founders and Friends!
A few weeks back we highlighted some of the key metrics that we look at when evaluating a potential acquisition. If you haven’t read it, you can check it out below:
📚Due Diligence Deep Dive <<Pt.1>> 📚
In this week’s Weekly Bloom, we wanted to share some insights on customer retention as it is a critical piece in SaaS valuations.
Although some may believe that customer acquisition and sales are the holy grail for SaaS, retention is just as critical for the survival of a business. At Bloom Equity Partners, we place high importance on measuring and understanding customer retention metrics during the acquisition process.
So let’s jump right in 🚀🚀
Different ways to calculate churn?
When discussing and analyzing churn it’s important to distinguish between revenue and customer churn. Revenue churn is the dollar amount that is lost when a customer leaves whereas customer churn, also known as logo churn, is the number of customers that leave.
Metrics to measure revenue churn: Gross v.s Net revenue churn
Although at first glance these figures may seem somewhat similar, their calculation formula and use cases vary differently.
Gross revenue churn is the percentage of revenue that is lost during a period due to customers canceling or downgrading. This represents the “raw” revenue churn number.
In comparison, Net revenue churn is the % of revenue lost from existing customers over a period. This figure is slightly more complicated to calculate as it includes both contract expansion revenue and downgrades into its formula.
Whereas gross revenue churn is a great high-level metric for understanding customer stickiness and retention, net revenue churn gives a better understanding of the overall health of a software company.
TLDR; One formula is not better than the other but their use cases vary widely. As an investor, it is important to understand your intended outcome of the churn analysis and always pay attention to the high-level impact of both metrics on the health of a business.
If you enjoyed this week’s insights, make sure to subscribe below:
What We’re Reading and Listening To…
📚 Executive Perspective; Michael Korzinstone, Senior Principal at Cinven
📚 Lessons from a Thousand CEOs
News from the Industry: deals, deals, and more deals 💰
Diversis Capital Management Reaches Milestone $1 Billion Assets Under Management
EQT Private Equity to sell optical design software company Zemax
Blackstone Joins Francisco Partners in Backing Dynamo Software
Debt funds seek ways to fund the adoption of technology
Favorites from the Ecosystem
Investors👇…..
Founders👇…..
Operators👇….
Good Laugh👇….
About Bloom Venture Partners
Bloom Venture Partners is a lower mid-market software-focused private equity firm, leveraging deep operational and commercial experience to create enduring market value for the benefit of our investors, founders, and their companies.
End Note
Thanks for joining us for another edition of the weekly bloom. At Bloom Venture Partners we buy, build + invest in SaaS.
We’re excited to continue backing remarkable teams on their quest of changing the way we work, live + create.
As always, if you enjoyed this week’s newsletter we'd love it if you shared it with a friend, co-founder, or anyone that would find value.