The four revenue leaks
Most SaaS companies lose 5-15% of MRR to leaks they never measure. The loss doesn’t show up as a single line item — it’s spread across four categories that each look small enough to ignore. Together, they compound into a significant drag on growth.
Failed payments are the most common source. On average, 3-8% of subscription charges fail on first attempt due to expired cards, insufficient funds, or bank fraud flags. Without active recovery, most of those customers silently disappear.
| Variable | What it captures |
|---|---|
| Failed Payment Leak | MRR lost when subscription charges fail and are not recovered. Caused by expired cards, spending limits, and bank declines. |
| Voluntary Churn Leak | MRR lost when customers actively cancel their subscriptions. Driven by poor product fit, competitive switching, or budget cuts. |
| Trial Drop-off Leak | Potential MRR lost when active trials fail to convert to paid subscriptions. Reflects onboarding friction and time-to-value gaps. |
| Discount Erosion Leak | MRR gap between list price and collected revenue due to permanent or long-lived coupons accumulating across the customer base. |
How to calculate each leak
Each leak source has its own formula. The inputs are numbers you already have in your billing system — the calculator below fills them in for you.
1. Failed payment leak
The recovery rate reflects how much your dunning process saves. With no dunning, recovery is near zero. With smart retries and email sequences, 30-70% of failed charges can be recovered.
2. Voluntary churn leak
This is the straightforward loss: customers who choose to leave. Track it separately from involuntary churn because the interventions are completely different — product improvements and retention offers vs. payment recovery workflows.
3. Trial drop-off leak
This measures the MRR you would have gained if every trial converted, discounted by your actual drop-off rate. It’s potential revenue, not booked revenue — but it represents real acquisition cost spent on users who didn’t convert.
4. Discount erosion leak
Discount erosion compounds silently. A 1.5% erosion rate on $50K MRR is $750/month — $9,000/year of MRR you never collect. The rate tends to grow as older cohorts carry grandfathered pricing that drifts further from current list prices.
Worked example: $50K MRR company
A SaaS company with $50,000 MRR, $79 ARPU, and 200 active trials runs these numbers:
| Leak source | Formula | Monthly loss |
|---|---|---|
| Failed payments | $50K x 5% x (1 - 40%) | $1,500 |
| Voluntary churn | $50K x 3% | $1,500 |
| Trial drop-off | 200 x $79 x 40% | $6,320 |
| Discount erosion | $50K x 1.5% | $750 |
| Total monthly leak | $10,070 |
That’s $10,070 per month — over 20% of MRR and $120,840 annually. Trial drop-off is the largest single source in this example, though the balance shifts depending on your conversion rates and dunning maturity. The failed payment and discount erosion leaks are the easiest to fix with automation; voluntary churn requires deeper product and retention work.
Plugging the leaks
Each leak has a different fix. Treating them all as “churn” obscures the interventions that actually move the numbers.
Failed payments: smart dunning
Configure automatic retries on optimal days (avoid weekends and month-end), enable network-level card updaters to catch expired cards before they fail, and send a targeted email sequence when retries are exhausted. Companies with mature dunning workflows recover 50-70% of failed charges.
Voluntary churn: root cause analysis
Tag every cancellation with a reason. Segment by cohort, plan, and usage to find patterns. Low-usage customers who churn never reached value — that’s an onboarding problem, not a product problem. High-usage customers who churn are often reacting to a pricing or support issue. Track gross MRR churn rate monthly to measure progress.
Trial drop-off: faster time to value
The best fix for trial drop-off is reducing time-to-value during onboarding. Identify the activation event that correlates with conversion (first dashboard viewed, first integration connected, first team member invited) and optimize the first-run experience to reach it within the first session. Shorter, more focused trials often convert better than generous 30-day windows.
Discount erosion: coupon expiry policies
Set every coupon to auto-expire after 3-12 months. When a discount expires, the price increase appears as expansion MRR — a painless upgrade that requires no sales effort. For legacy grandfathered rates, run a gradual sunset: notify customers 60 days ahead, offer a partial discount as a bridge, and move them to current pricing. The short-term contraction is smaller than the compounding cost of permanent underpricing.
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