tomtunguz.com – If a typical SaaS business loses about 2 to 3% of their customers each month to churn, the business must grow by at least 27% to 43% annually to maintain the same revenue.
The idea written as an equation:
Revenue Growth = Customers x Avg. Contract Value x (Growth Rate – Churn Rate)
At the beginning of a SaaS startups’ life, when the company generates $1M in annual revenue, churn in absolute dollar terms is small, about $300k for the year. This number is particularly easy to write off if the company is growing quickly, perhaps tripling to $3M in revenue next year. Fast forward two or three years to a SaaS company generating $15M per year and churn is now $5M per year. Then two or three years later that number could be $10M or $20M.
Read more at tomtunguz.com