20% of small businesses fail within their first year.
Success isn’t guaranteed.
This is especially the case for startups and SaaS companies.
It’s a hyper-competitive space.
You have to be innovative, fast, and strategic. Otherwise, you churn into the ground.
And on that note, churn is one of the biggest problems for SaaS businesses.
You spend so much time and budget acquiring customers, only for them to slip through your fingers.
The SaaS churn rate formula looks something like this:
Overall, it’s how many customers churn divided by the total number of new customers multiplied by 100. There’s your percentage.
Below I’m going be teaching you what a good SaaS churn rate is and how it can be improved.
SaaS churn rate benchmarks
These are some of the most interesting findings related to the average churn rate for SaaS companies and what can be done to decrease it.
1. 32.7% of SaaS companies have a churn rate of 15% or higher (Pacific Crest)
You hear a lot of numbers thrown around…
3%, 5%, etc.
However, Pacific Crest performed a survey interviewing 336 SaaS companies that had a median annual revenue of $5 million and 50 full-time employees. 177 responded, creating the following data:
Over 32% of respondents had a churn rate of 15% or more!
That means if one of those companies had 1,000 recurring customers. They were losing 150 per month. That’s nuts.
It’s higher than the numbers you normally hear, but that’s another thing to consider.
Averages are averages.
There will be SaaS businesses that have non-existent churn or very high.
This is because there are many factors that contribute to churn, including:
- Pricing: Does the price make sense for the ideal customer? Do they believe they are getting a return and it’s worth the investment?
- Features: Are the features useful and helping customers solve their problems? Are they proprietary or can be found for cheaper?
- Customer service: Are there are many channels for customers to seek help through? What are response times like?
- Updates: Is the software continually being updated to be faster and better?
- Documentation: FAQs, tutorials, and contact help customers use your product and have a better experience.
- Onboarding: Does onboarding clearly explain the product, its benefits, and the next steps?
2. Higher priced products have less churn (Recurly Research)
Here’s something fascinating: higher-priced subscription products experience less churn.
Why do you think this is?
Probably because a customer who spends $250 or more per month is more serious about the purchase to start with. They’ve researched it, tried a demo, and compared it to other tools.
This is the opposite of cheaper SaaS products which may attract users who aren’t as deeply invested.
They’ll spend $10, $25, or $50 dollars and it’s not going to break their budget.
It’s almost like window shopping.
If you’re brainstorming strategies to reduce churn, you may want to test increasing the price of your SaaS product.
Many SaaS companies offer three plans (or a fourth one as a trial) that include a low, moderate, and high price point.
These come with increased features, limits, and resources.
And, from the above findings, higher-priced plans may experience less churn if you A/B split test it.
3. Ninja Outreach has a 10% churn rate (Baremetrics)
Ninja Outreach is an email and influencer outreach platform. They are a very successful subscription company so I thought they’d make a great example in this article.
The business does approximately $834,166/year in revenue and has a $630 customer lifetime value.
Ninja Outreach also has a churn rate of 10%.
This is a combination of both unpaid and cancelled accounts.
That’s roughly $83,416 in lost revenue each year!
Why am I showing you this?
Because it’s a great example that every company–no matter how large or successful—will experience churn in varying rates.
4. B2B SaaS products have a higher churn rate than B2C (Recurly Research)
On average, B2C products have a churn rate of 7.05% while B2B experiences only 5.00%.
Why could this be?
One theory is that products sold to other businesses tend to be more complex.
Think about CRM, AI, or marketing automation software, for instance.
Most companies won’t jump blindly into using one of those.
Rather, they plan, research, and test to make the best possible purchasing decision.
Thus, they are less likely to churn.
How does your B2C or B2B churn rate stack up against these numbers?
5. Mature products have much less churn (Cobloom)
If you recently launched a SaaS company, don’t worry if your churn seems higher than normal.
You’re still carving out your place in the market, developing strategies, and onboarding customers.
It’s been found that churn rates can reduce as much as 15% over the lifetime maturation of a product.
What can you do knowing this?
Firstly, begin collecting customer feedback ASAP. Use Google Forms or other survey tools to get feedback for improving the product.
I also suggest using a tool like Hotjar to understand how users interact with your website and service.
Secondly, develop a template for an onboarding process. You want to be able to get customers onboarded quickly and maximize how they use the tool to increase how long they remain a client.
Thirdly, carve out a niche. Look at us. We created an entirely new vertical called marketing security instead of blending into the market.
Have confidence knowing that if you improve your product, branding, and marketing, churn will gradually reduce, too.
Final thoughts on SaaS churn rates
Oh, churn rate.
It’s the bane of many SaaS companies.
You spend all of that time and effort to acquire new customers, only for them to call it quits later.
What’s a startup to do?
Firstly, know your numbers. The average B2B churn rate is 5% and 7% for B2C.
Some data shows that this number can get up to 10–15% or higher.
Secondly, it tends to decrease as the price rises. There may be a worthwhile opportunity to experiment with increasing pricing for your SaaS subscription.
And, lastly, aged products appear to have much less churn due to adoption and time spent optimizing them.
I’ll let you in on a secret, though.
You can try Morphio today for free to be alerted when your SaaS business is losing or gaining momentum. Everything from unseen marketing opportunities to human errors will be sent to your team automatically.