The Challenge With Churn
News, insights and updates from the team at Bloom Equity Partners
Happy Friday fellow weekly bloom readers!
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It’s truly an unprecedented time to be value investing in software, and our team is delighted to be closing off the raise for our next enterprise software buyout fund over the coming weeks.
If you're a QP / accredited HNW investor, or work at a family office/quasi-institutional platform and are interested in learning more, email our team (ir@bloomequitypartners.com) & we'll share our performance, plans & strategy.
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Now, let’s dive into regular programming… 🔥
Properly Calculating Churn
As a software operator, you know how hard it is to scale while losing revenue from existing customers. That’s why as a founder, or operator it is critical to properly understand the metrics that matter for the success of your SaaS co. When it comes to understanding churn, many often make the mistake of looking at one churn rate, but failing to ignore other churn metrics can lead you to miss out on important insights.
Here’s a quick breakdown of the different churn metrics, how to calculate them, and target benchmarks 👇
Customer or Logo Churn
Customer churn rate = the number of lost customers over a period / customers at the start of the period x 100.
Measure the number of customers lost over a specific time frame.
Churn rate of around 10% is considered strong for SaaS businesses.
Lost Dollar Churn
Lost Dollar Churn = total revenue lost during the period / total revenue at beginning of the period x 100.
Measures the dollar amount (ARR) lost in a given period.
10% or less is typically acceptable for SaaS companies.
Gross Dollar Churn
Measures the amount of revenue lost from downgrades and cancellations.
Gross Dollar Churn = lost revenue from cancellations + lost revenue from downgrades / ending revenue of period.
Using this metric along with logo churn can help you understand what type of companies your business is losing.
15% or lower is an acceptable figure for SaaS companies.
Net Dollar Churn
Net Dollar Churn = lost revenue from cancellations + lost revenue from customer downgrades or spending less – revenue gains from existing customers spending more.
Measures changes in recurring revenue from downgrades, cancellations, and upgrades.
Should aim to achieve negative net churn- shows that you can grow revenue without bringing on new employees.
Interested in learning more?? Make sure to check out the following reads below 👇
📚 What is a good SaaS churn rate?
📚 The Challenge with SMB SaaS: High Growth Can Only Mask High Churn For Just So Long
📚 The SaaS Metrics That Matter
What We’re Reading and Listening To…
Favorites from the Ecosystem
Investors👇…..
Founders👇…..
Operators👇….
News from the Industry: deals, deals, and more deals 💰
Zendesk shareholders vote in favor of $10.2 bln go-private deal
Vista Equity Makes Offer for Software Security Firm KnowBe4
Resurgens Technology Partners closes $500m software-focused Private Equity Fund II
End Note 🔚
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About Bloom Equity Partners
Bloom Equity 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.
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