Revenue churn is how much MRR you have lost over some period of time due to customers churning. It is the most important churn SaaS metric
Revenue churn and customer churn are different. Revenue churn measure the actual MRR lost from existing customers canceling, while customer churn measures the total number of customers that cancel.
If all of your customers pay the same amount for your product, then it does not matter whether you measure churn as customer churn or revenue churn.
If your customers pay different amounts for your product, e.g. you have more than one subscription level, or you offer annual contracts, then your revenue churn and customer churn can be quite different. One big customer leaving can reduce your MRR by more than a small customer leaving.
If you are using MRR as the main indicator of your SaaS business' health, then revenue churn is a more useful measure than customer churn. Revenue churn can be used to forecast and calculate MRR, but customer churn cannot because it does not measure MRR.
The exact amount of revenue churn your SaaS business has is less important than the churn rate. Revenue churn rate is just the amount of MRR you lost from customers churning divided by your total MRR.
If your SaaS with 100K MRR has 1K of revenue churn per month then it probably does not have a churn problem. A Saas business with 3K MRR and 1K revenue churn per month has a churn problem.
A SaaS business with high revenue churn can have difficulty achieving a good MRR growth rate. Every month you need to add more MRR than what was lost from churned and contraction MRR. Sometimes it is more difficult to scale customer acquisition or increase expansion MRR than it is to reduce churn.
The first step to reducing churn is to figure out what is causing it.
Revenue churn can be broken into voluntary and involuntary churn:
Voluntary and involuntary churn need to be fixed in different ways.
To reduce voluntary churn you will need to understand why customers are canceling their accounts. If you don't know why customers are canceling then it is impossible to efficiently reduce churn. the best you could do is guess and hope to get lucky.
The easiest and most direct way to find out why customers are canceling is to ask them on a video call.
Talking to people on a video call can be kind of scary. The easiest way I have used is to email customers that cancel and offer them an Amazon gift voucher if they jump on a 10-minute call. On the call just ask "why did you start using [product]" and "why did you stop using [product]".
It's important to ask open questions. If you think you know why they left and ask leading questions, then their answers will be biased toward whatever you think the issue is.
Customer success/support teams are also a great source for finding out why customers are canceling. If your user-base is large enough, you will see users contacting support saying that they want to cancel because of reason X. If you can gather all of these reasons up, then you will get a picture of the main reasons people are leaving.
If you have help-center documentation with a search bar, then you can have a look at what people are searching for. If there are a lot of searches that are similar, then you have found a reason why users are churning.
Some companies don't like calling customers and prefer to use a pop-up survey in the product when a customer is leaving. These surveys are useful because they scale well (you don't need to talk to anyone), but the results can be very skewed. Users are looking for a quick way to get passed the survey and will often hit "it was too expensive".
When you know the main reasons that users are churning you can try to fix them. If it is an obvious fix you might want to make the change and deploy it. If you are not sure whether your change will work, or you want to test a few things, then you could run an A/B test.
Involuntary churn happens when a customer's payment fails and their subscription is canceled. There are a few main reasons for this:
the payment network declined the transaction.
The customer might have not had enough money/credit in their bank account when the charge was attempted.
It's a prepaid card that was just used to get passed a credit card requirement on the free trial
There are a number of services for reducing involuntary churn. They mostly involve retrying charges or emailing customers to update their payment details.
If you use Stripe as your payment processor, then they automatically retry payments and have functionality that lets you email customers when their payments fail or their card is about to expire.
Payment networks can block transactions if they appear risky, or are not allowed (e.g. some cards don't allow overseas transactions). It can be tricky to figure out exactly why payments are failing because banks will often send generic or obfuscated reasons for payment failures.
Stripe has an excellent article about improving credit card authorization rates.