Why is my B2B SaaS churn rate so high when growth is strong

A high churn rate and a fast growth curve are often the same behavior, seen from two sides. Across 2021 I watched startup after startup get hooked on buying customers, spending three thousand dollars to land a five-hundred-dollar client and booking it as growth.

The customers you chase hardest are usually the ones you are training to leave. I have stopped being surprised by it.

Read the churn on its own and the cause stays hidden. It is sitting one chart over, in the growth.

A churn rate arrives at the board as one figure. It sits next to the growth number and reads like its opposite. Nobody asks which customers are inside it, or whether the ones leaving are the ones the growth was built on.

One blended churn rate can't tell you who is leaving

A blended churn rate is an average. Averages are where a real cause hides.

Serhat Pala, General Partner at Cross Ocean Ventures, reads these numbers from the outside. What he weighs in a young company, he told me, is "how much the founder knows about their numbers."

Can they say how the churn differs across the kinds of customers they have, and how they chose those kinds to begin with?

A founder who holds only the blended figure has measured the churn without asking what it is made of. I see it constantly. Choosing the single number that answers the question in front of you is harder than watching a percentage climb.

I would rather see which customers are leaving than a clean number nobody has questioned. The figure feels like an answer. So nobody looks behind it.

A churn number no B2B SaaS investor would touch

Serhat Pala walked me through the example that makes the pattern concrete. A small B2B SaaS company out of Latin America was growing fast. Its product had real momentum. Its churn ran close to double digits.

That number got it turned down by one Bay Area investor after another. Plenty of B2B SaaS funds keep a churn threshold you have to clear before they will even take a meeting.

Instead of passing on the number, the fund did the work those other investors would not. It pulled the marketing figures apart and asked what was producing the churn underneath the growth.

What was actually producing the churn?

What the fund found sat under the surface.

The team and the founders were driven to try as many marketing methods as they could. Each new method pulled in a different kind of customer. Plenty of those customers were never going to stay.

The habit driving the growth was also the habit driving the churn. The company saw it, let those customers go, and reached for the next method anyway, because the experimenting was working.

What the fund did once it had a reason

What the fund did with that answer is the part I sit founders down with. Once it could hand the team a reason, Pala's words were "we believe your churn is bad, but we believe your churn is bad because of this reason."

The founders changed how they won customers. They used the analysis to raise funding elsewhere, before the fund itself came in.

Most investors reject the number without ever explaining it

Serhat Pala's fund was the exception, and he would say so himself. Most investors see a number above their line and pass, with no time to learn why. I have watched it happen.

So the split is your job to run before the meeting, not the investor's to run inside it.

How to split your churn yourself before the meeting

Run it yourself. Split the churn rate by the kind of customer behind it. Group people by how you first won them. Set the growth-driving ones against the rest. Some would have arrived without the spend, which is a question worth settling before you trust the growth.

Splitting the churn has a limit worth naming. It leads somewhere only when the churn comes from the customers you chased for growth. If every kind of customer leaves at the same rate, the cause is the product or the price, and no breakdown will find it.

Pala's own warning runs the other way, and I hand it to founders often. Someone who leans on winning customers over keeping them is, in his words, "almost like a sign of an addict."

A churn rate with a reason attached is a different number

The churn now carries a reason. The founder is no longer defending a percentage. They can tell an investor which customers were leaving, which of them the growth was built on, and what changed once they saw it.

The rejection that used to end at the number now has somewhere to go, because the founder got there first.