10% of the total monthly sales churning on an absolute basis is near fatal. That means that within 5 months, you have 50% absolute churn per year, which reveals fundamental flaws with the service itself.
Anything above small single digit churn is telling you and your team that customers are not seeing enough value in your product. I'd start by doing as many exit interviews as you can with those that have churned out, including, offers to reengage at a lower price-point while you fix the issues that matter to them.
Happy to talk through this in more detail in a call.
In the SaaS world churn is just a fact of life. When it's so easy to sign up and to cancel services people are always going to leave.
I've been involved with many large SaaS companies and generally speaking, the lower the cost of the product, the higher the churn rate. This basically has to do with a whole lot of psychological stuff which, all summed up basically says: The bigger the decision the bigger the cost of having to change your mind.
Churn as a proportion of sales is definitely an important metric, and 10% isn't the best score. It's also not fatal.
What you really need to be paying attention to is the cause of the churn. You need to roll your sleeves up and understand WHY people are leaving and whether it has to do with something you're doing, something you're not doing... or it's just not a great fit for them and they naturally drop off.
Once you've identified the cause of the churn, you have a lot of really exciting options as to how you can cut back on the churn.
As a SaaS company, you have the ability to see exactly how every single customer uses your product, to feed that into a reactive database and to enable that database to reach out to "high risk" customers and to engage them and build a meaningful and successful relationship with them.
I won't lie and tell you that it's simple, or that you an swallow a magic pill and cut your churn rate in half... But by listening to your customers and working with people who "get" customer engagement you can reduce churn, increase customer satisfaction, and increase your bottom line.
The normal churn rate for a B2B SaaS company can vary depending on factors such as industry, target market, customer satisfaction, and product offering. However, a commonly cited benchmark for SaaS churn rates is around 5% - 7% annually for established companies, though it can be higher for newer or smaller companies.
To calculate the churn rate, you would typically use the formula:
Churn Rate=Number of Customers LostTotal Number of Customers at the Beginning of the Period×100%Churn Rate=Total Number of Customers at the Beginning of the PeriodNumber of Customers Lost×100%
Given that you have an average monthly revenue of $850 per customer, if you're experiencing a 10% churn rate of total monthly sales, it means that 10% of your customers are churning each month. To put this into perspective:
If you have 100 customers:
Monthly Revenue: 100 customers * $850 = $85,000
Churned Revenue: $85,000 * 10% = $8,500
So, you're losing $8,500 in revenue each month due to churn.
Whether a 10% churn rate is high or low depends on various factors, including industry benchmarks, the stage of your company (early-stage companies may have higher churn rates as they iterate on product-market fit), and your company's growth goals. Generally, a 10% monthly churn rate would be considered high for most B2B SaaS companies, as it would lead to significant revenue loss over time if sustained. It's important to monitor churn closely and implement strategies to reduce it, such as improving product quality, enhancing customer support, and implementing retention initiatives.
anything >10% a YEAR would already be somewhat a concern for me (I do M&A of B2B SaaS companies)
10% a month is a big issue, either the product disappoints, the price is too high, or the engagement model isn't suited for SaaS and should be a one time purchase.
10% is considered to be pretty dangerous, to be honest, especially if the monthly value is 850. You should analyze your entire funnel to see where the customers are dropping off the most and then fix that part of it. You can use tools like cohort analysis, mixpanels, etc. for that.
How does the churn looks to total customers? 10% of monthly new sales does not sound that bad. Based on the current customers, the annual churn could be as low as 5% in your example, which would be amazingly good for most b2b SaaS companies.
In these pandemic times when economies are tumbling down and the whole world is going through recession nothing is normal anymore, but I will give you what is acceptable. In line with my experience, Bessemer Venture Partners says an “acceptable” SaaS churn rate is in the 5 – 7% range ANNUALLY, depending upon whether you measure customers or revenue. And BVP’s assertion is backed up by Pacific Crest in their Private SaaS Company Survey Results that show roughly 70% of SaaS companies in their survey had annual churn in the < 10% range, with 75% of those at 5% or under. The way I read the results of Pacific Crest’s survey is that 30% of SaaS providers surveyed have an unacceptable level of churn. Now, just so we are on the same page, 5% – 7% Annual churn – the good churn rate – translates to 0.42 – 0.58% monthly churn. This means companies with “acceptable” churn, lose only about 1 out of every 200 customers (or dollars) per month.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
For a B2B SaaS company, churn rate is a critical metric that can vary widely depending on the industry, product, and customer base. However, some general benchmarks can help assess whether a 10% monthly churn rate is high or low.
### Industry Benchmarks for B2B SaaS Churn Rates
1. **Normal Churn Rates:**
- **Low Churn:** < 5% annually (or < 0.5% monthly)
- **Average Churn:** 5-10% annually (or 0.5-0.83% monthly)
- **High Churn:** > 10% annually (or > 0.83% monthly)
### Analyzing Your Churn Rate
1. **Monthly Churn Calculation:**
- A 10% monthly churn rate means that 10% of your customers are leaving each month.
- This is significantly higher than the average churn rate for B2B SaaS companies.
2. **Revenue Impact:**
- With an average monthly revenue of $850 per customer, a 10% churn rate means losing $850 in revenue for every 10 customers, which can quickly add up to substantial revenue loss.
### Comparison to Benchmarks
- **A 10% monthly churn rate is considered extremely high for a B2B SaaS company.** Even high-churn industries typically see annual churn rates around 20-30%, which translates to approximately 1.7-2.5% monthly churn.
- **Reducing Churn:**
- Focus on customer retention strategies, such as improving customer onboarding, providing excellent customer support, and regularly updating the product based on customer feedback.
- Implement proactive measures like churn prediction models to identify and address at-risk customers before they leave.
### Recommendations
1. **Customer Feedback:**
- Gather detailed feedback from churned customers to understand the reasons behind their departure.
- Use surveys, exit interviews, or direct outreach to gather insights.
2. **Customer Success Programs:**
- Invest in a customer success team dedicated to helping customers achieve their goals with your product.
- Implement regular check-ins and health score monitoring.
3. **Product Improvements:**
- Continuously enhance your product based on customer needs and pain points.
- Ensure your product delivers consistent value and aligns with your customers' evolving requirements.
4. **Pricing and Contracts:**
- Review your pricing model and contract terms to ensure they are competitive and offer value.
- Consider longer-term contracts or incentives for annual subscriptions to reduce monthly churn.
### Conclusion
A 10% monthly churn rate for a B2B SaaS company is very high and indicates a need for immediate attention to retention strategies. By understanding the reasons for churn and implementing targeted interventions, you can work towards reducing this rate and improving customer retention and overall revenue stability.
