Understanding and optimizing your SaaS churn rate is critical to sustaining long-term business growth. Customer churn is the rate at which users cancel their subscriptions, directly impacting revenue and business valuation. But what constitutes a good churn rate for SaaS, and how does it vary by industry, pricing model, and company maturity?
In this comprehensive guide, we’ll explore:
If you’re looking for ways to reduce churn, optimize customer retention, and drive predictable growth, this guide is for you.
Churn rate (also known as attrition rate) measures the percentage of customers who cancel their subscriptions over a given period. It’s a crucial SaaS churn metric because it directly affects Monthly Recurring Revenue (MRR) and Customer Lifetime Value (CLV).
The most common formula for customer churn rate is:
Churn Rate = (CustomersLosInAPeriod/CustomersAtTheStartOfThePeriod) x 100
For example, if you started the month with 1,000 customers and lost 50, your churn rate is:
(50/1000) x 100 = 5%
Revenue Churn Rate: Some companies also track revenue churn, which considers the percentage of revenue lost due to customer cancellations:
RevenueChurn = (MRRLostDueToChurn / MRRAtStartOfPeriod) x 100
High churn rates signal issues with customer satisfaction, product fit, or pricing. Keeping churn low is essential for sustainable SaaS growth.
The average churn rate for SaaS varies by business model, customer segment, and pricing strategy. Here’s what research shows:
B2B SaaS (Enterprise) | 2% - 6% per month
B2B SaaS (SMB) | 3% - 7% per month
B2C SaaS | 5% - 10% per month
Freemium SaaS | 30% - 50% per month
Key Takeaways:
A good SaaS churn rate is generally under 5% monthly (or under 60% annually). However, top-performing SaaS companies aim for <3% monthly churn (or <36% annual churn).
The lower your churn, the easier it is to scale profitably.
To understand and control churn, track these SaaS churn metrics:
A poor onboarding experience leads to early churn. Ensure new users see value quickly by providing:
Fast and effective support reduces churn. Consider:
Inactive users are always at the highest risk of churning. Boost engagement through:
High prices or rigid contracts increase churn. Optimize pricing by:
Use predictive analytics (like we do at ChurnWave!) to identify users likely to churn. Product usage tools like Mixpanel and Amplitude are great at tracking overall engagement and produce use, but you need to go a step beyond - to see churn before it happens, track engagement and retention with outcomes, and identify cohorts at-risk for churn.
The more embedded your product is in your users' day-to-day, the lower the churn. Strategies include:
A low SaaS churn rate is essential for scalable growth and profitability. While churn varies by business type, the best SaaS companies achieve monthly churn rates below 3%.
To reduce churn, focus on onboarding, engagement, customer success, and pricing strategies. By tracking the right SaaS churn metrics and continuously improving retention, you can drive long-term business success.
Are you struggling with churn?
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