Varos Glossary

Churn Benchmarks

What is Churn Benchmarks

SaaS churn is a sort of statistic or key performance indicator (KPI) used to measure either the number of customers that stop using your services or the amount of money lost over a certain time period. In order to assess performance and estimate future revenue, your executive team must monitor this KPI in your yearly marketing report.

To maintain a successful SaaS growth trajectory, your SaaS growth rate must remain above your churn rate. 

Customer turnover rates are an excellent indicator for startups to use as a starting point for assessing the perceived value of their existing B2B SaaS product and services, or Product-market fit (PMF).

Customer churn refers to the monthly or yearly proportion of customers that stop using your services. Here's how to calculate the turnover of SaaS customers:

  • Customer churn = Total number of lost customers / Total number of customers

Small to medium-sized companies (SMBs) with monthly billing often have a turnover rate between 3 and 7 percent.

B2B SaaS churn rate benchmarks

While the typical churn rate differs by sector, statistics may assist you to analyze your development trajectory by revealing broad trends.

  • SaaS benchmarks are essential for comparing performance and gauging success.

However, it may easily become a burden if B2B companies lose sight of the appropriate KPIs to measure and get submerged in data. For this reason, SaaS tools must concentrate on growth-related indicators that have been established and work to improve them.

Variables that might influence SaaS churn rate benchmarks

  • Size of the corporation

Larger organizations often have better SaaS churn benchmarks and lower churn rates since they have had more time to cultivate their customer. In addition, their customers often have lengthy contracts that cannot be terminated, and therefore do not have the same budgetary constraints as medium or small businesses.

  • Product Class

Sometimes software is essential to a firm, but marketing or human resources tools may be considered a luxury. Due to the fact that they are attempting to establish their "nice-to-have" items in the market, some firms experience slower development than others.

  • Involuntary or Voluntary churn

Voluntary churn is the result of a client's choice to leave a SaaS service or downgrade to a cheaper package for a variety of reasons, such as bad customer service, inferior goods, or expensive price tiers. Involuntary churn occurs when a consumer had no intention of canceling their membership, but did so nevertheless, often owing to payment concerns. Separate analyses of voluntary and involuntary turnover rates should be conducted.

  • World Events

The Covid-19 outbreak has an undeniable effect on the typical turnover rates of SaaS businesses. For instance, software such as Zoom had tremendous growth, whilst those supplying in-person markets saw the worst churn rates.

  • B2B vs. B2C

Typically, B2C organizations have greater turnover rates (around 5%) than B2B companies (around 4.5%). This is mostly because B2B enterprises make more costly long-term expenditures and commitments, gaining more loyal customers.

Improve Your B2B SaaS Churn Rates

Obviously, there is no magic wand that can make your churn rates disappear overnight. As previously said, churn is inescapable, so you may as well accept it and invest in churn-reduction techniques.

You may take the following actionable strategies to decrease B2B SaaS churn:

  • Enhance your onboarding process. Your onboarding process is the first impression clients get of your company, and it sets the tone for the whole customer experience. To reduce the churn rate, you must examine your onboarding procedures and ensure that everything is clear and appropriate for new clients.
  • Sell more yearly contracts. Since annual contracts bind customers to your services for at least a year, they are the simplest and quickest strategy to reduce churn rates. In addition, clients that engage in long-term contracts are often not cost-conscious and prefer your services because they have faith in your organization. To boost your yearly contracts, you might contact current clients and offer an attractive discount on annual plans, highlighting the savings over monthly plans.
  • Concentrate on up-and-cross-selling. Upsells urges consumers to spend in higher price tiers for software while cross-sells propose acquiring extra relevant services like integrations, training, or premium support. These strategies enable you to maximize the value of your present clients by producing greater income without incurring additional costs to recruit new leads.
  • Reduce your unintentional churn. 20-40% of churn is caused by payment troubles resulting from credit card failures; hence, SaaS organizations must engage in a robust strategy to prevent involuntary churn.