Here are the 7 Stages of SaaS Churn, when you build a successful and valuable company:

1) Churn and Burn

When you start, the first thing you do is sell your crappy early product to those who will pay you.

You learn very quickly which customers weren’t a good fit in the first place–they didn’t have a big enough pain and problem or didn’t do the work to get to value.

You will burn cash fast if you don’t stop selling to bad fits and only sell to those who can get to enough value.

2) Churn and Learn

Next you learn where your product wasn’t great enough for your early “ideal” customers to stay and keep paying you.

Can we get it working for them? Can they do it themselves and get a big benefit? Can we get them to change their habits and their thinking?

Fix and test. Fix and try. Stay close and help your first customers tell you exactly why they will keep using it and pay you again next year. This is harder than it sounds.

3) Crossing the Onboarding Chasm

Once you know who should buy your software and your app works great for some customers, you discover there is much to do after the sale to get them up and running and happy with the results.

Most B2B SaaS companies overhaul their onboarding processes and features somewhere between $500K ARR and $2M ARR, depending on their price points.

4) Churn 2.0

After you get through the thrash of bad-fit customers, product features and fixes, and onboarding, you can see the holes in your product and processes more clearly.

This takes alignment from marketing, sales, success, product, and engineering. And it takes a CEO who doesn’t scream when you miss the stretch revenue goal. It’s really expensive to whip the sales horse when your logo/company churn is still above the “good” range for your ACV.

5) The Net Revenue Retention (NRR) Epiphany

How can you grow revenue faster besides selling brand-new customers? You sell more to your existing customers.

Raise prices, create new editions, and charge for a few add-ons. Create some re-occurring revenue with transaction pricing, in some cases.

6) Churn and Re-Learn

When you pivot and substantially change who you sell to, what you sell, and how you sell it, you’ll need to go through those first four steps again. Sorry.

7) The Churn Ceiling

When you get bigger, your spreadsheet reveals a new reality: you need to sell more than your churn number to grow your customer base.

With 10,000 small biz customers at 3% monthly churn, you must sell 300 customers monthly before you have a net new customer. At 100,000 customers, that’s 3000 churning every month. Ouch. Your PMF, CAC, and NRR better be improving!

These seven general phases mark the maturity of your SaaS business.

All larger SaaS companies get very sophisticated about tracking, understanding, and aligning incentives around churn.

The bigger your company, the more that churn matters.

Your churn maturity is also a major driver of exit multiples and profit levels.