Every company suffers from customer churn. It’s unavoidable. The chances that a customer will cancel a subscription are always present, whether because of a failed payment, a cash flow crisis, or simply unhappiness. However, a SaaS company’s churn is one of the fundamental metrics to measure its success and growth. It can help you refocus your marketing or sales efforts, reevaluate your user retention or onboarding strategies, and much more.
Nevertheless, when it comes to SaaS churn benchmarks, there are so many variables to consider. And knowing which numbers are good can take time and effort. So that leads to obvious questions: What are SaaS churn benchmarks? What should I consider when comparing my company metrics to others? Is there an ideal churn rate for SaaS? Is 5% high or low?
Today, we’ll explore these questions and more, including
- What is churn?
- Measure SaaS churn
- What is an acceptable SaaS churn rate
- How to improve your churn rate
- Acceptable churn rate in SaaS
Come on, let’s get started!
What is Churn?
SaaS churn is the percentage of customers who cancel a recurring software-as-a-service subscription within a defined period. The churn rate is one of the most important SaaS metrics, as it can provide valuable insights into an organization.
This metric can reflect customer satisfaction, pricing, competition with an organization’s services, the average user’s length of stay, or the organization’s continual growth (or decline). Generally, the lower your churn rate is, the more customers you’re retaining. Instead, the higher your churn rate is, the more customers are canceling your subscription. In conclusion, in this case, lower is better.
Are you interested in digging a little deeper? Check out our last article SaaS Churn Rate – Calculation, Averages & Benchmarks [2022 Guide].
There are different ways to measure the churn rate of your SaaS company. To learn the best way and how to do it, let’s jump into the next section!
Measure SaaS Churn
To determine what percentage of your subscribers canceled their subscriptions or didn’t renew their contracts, you must divide the number of customers lost in a month by the number of customers you had at the beginning of the month. Here’s how it works:
Churn rate = (Number of canceled customers in the previous calendar month ÷ Number active customers at the start of the month) x 100
However, if you’re not into formulas, say hello to our FROGED churn calculator. With it, you’ll be able to get a ballpark figure regarding the annual churn rate of your company.
What is an acceptable SaaS Churn Rate?
When calculating your company’s churn rate, you might need clarification on a good result, as it depends on many factors, such as the industry, the global economic situation, your competitors, and more.
On average, SaaS businesses should maintain their churn rate between 3% and 8%. Generally, the average churn rate is 5% annually, but as said before, it varies depending on the business and the industry, so there isn’t a universal churn rate. Let’s discover what you need to consider when comparing churn rates.
Considerations when comparing SaaS Churn Benchmarks
There are SaaS companies that have a 10% churn rate and companies that have around 3%. If we look at the different businesses, the results differ greatly, so what’s the catch?
1. Differs per industry
The churn rate differs depending on the industry. For example, if you look through your company’s products, some are essential while others are replaceable. In the same way, some types of customers tend to churn more frequently in specific industries than others.
2. Depends on the growth stage of your company
As listed above, the ideal SaaS churn rate is 5% considering large companies. But if we analyze the churn of smaller businesses, the churn rate is much higher. This is because large companies can achieve bigger customers, and, in consequence, this impacts the churn results. Also, larger businesses are less sensitive to price than smaller ones, and smaller companies’ lower acquisition costs make it easier to switch between products.
3. Monthly churn or annual churn?
Companies can measure churn in two different ways: monthly or annually. Results can vary depending on how they do it. If you compare your churn with others, ensure they measure the same way you do.
4. Track averages!
Keep an eye on averages! It’s good to monitor averages in the industry you’re in. Through this, you’ll be able to analyze the results of other companies and adjust your product or service to achieve the churn you’re looking for.
There are different reasons why your company has the churn results it does. However, every company looks to improve them every day. Are you ready to discover how to boost your results? Jump over to the next section!
How to improve your Churn Rate
We know improving your churn rate is challenging! Although, don’t panic. There are several strategies you can follow to get better results. Here are the best ones:
Investigate why churn occurs
First and foremost, you should analyze why churn occurs. Convert customer surveys, ask your churn users to provide feedback, and investigate users’ behavior. In this way, you will understand what’s happening with your product and upgrade it to meet your customers’ needs.
Engage, engage, engage!
Customer engagement is one of the best strategies to retain your users. This strategy should be based on solid omnichannel support, live chats, dynamic and resolutive user interaction, and more. If you want to bring your customer engagement to the next level, check out our FROGED solutions today.
Offer incentives such as discounts, free plans, or new features to customers that are more likely to churn. This will give them a reason to stay.
Target the right audience
It doesn’t matter how much marketing you do if you don’t target the right audience. Always elaborate campaigns based on the needs of your target audience. Take the time to do the right analysis and skyrocket your marketing efforts!
Build relationships with your customers
The more customers you have, the more important it is to maintain a strong relationship with each of them. Personalizing communication with them may reduce churn. This will drive engagement and demonstrate your concern for their success and needs.
All these actions can level up your company and convert your customers to brand advocates. In this way, you’ll create a consistent customer base and reduce their chances to churn.
Acceptable Churn Rate in SaaS
The Churn rate is considered one of the most important metrics in the SaaS industry. Your company’s churn always has to be much lower than your benefits. If not, a company won’t be profitable.
To better understand the correct churn of your company, investigate the industry, the competition, the averages, and the global economic situation. Don’t panic if your result isn’t the expected, as there’s a lot of room for improvements such as analyzing why your churn is happening, improving your customer engagement, offering incentives, targeting the right audience, or building relationships with your users.
Interested in bringing your churn to the next level? Book a demo with us to learn more about how FROGED can help you reduce churn by 70%!