How does your SaaS churn rate shape up against the average churn rate for SaaS?
Churn rate is one of the most important metrics for any SaaS business. It's a measure of how many customers or subscribers are canceling their subscription with a company.
A high churn rate is typically a sign of poor product-market fit and can crush the growth prospects of a SaaS business.
In this article, we'll take a look at some of the data on the average churn rates for SaaS businesses. We'll also break down some key churn rate benchmarks for you to keep in mind.
Let's face it, SaaS churn is an inevitable part of running a subscription business.
However, with the right retention strategies in place, it's possible to get a handle on your churn rate before it spirals out of control.
Understanding the average churn rate for SaaS businesses is the first step in putting together a solid retention strategy.
After all, a clear SaaS churn rate target will provide a sense of direction.
A user base of a SaaS business suffering from high churn resembles a leaking bucket.
With a hole in the bucket, it doesn't matter how much water you pour in, the bucket will still drain.
The same goes for a SaaS business with high churn.
Even if the company is able to acquire new SaaS users at a fast pace, high churn is a major headwind working against the growth of the business.
This is why it's so important for SaaS businesses to keep a close eye on their churn rate.
Churn rate is a lagging indicator, meaning that it's a metric that only tells you about what has already happened.
If your churn rate is high, it's a sign that you have a problem with customer retention and product-market fit.
Understanding the average churn rate for SaaS businesses is important because it gives you a benchmark to compare your own business against.
If your churn rate is significantly higher than the average, it's a sign that you need to take action to improve retention and lower your churn rate.
When compared against the lifetime value of users, a high churn rate can also throw the sustainability of user acquisition strategies into question.
The average churn rate for SaaS businesses is around 5% annually.
This translates to 0.42% monthly churn.
However, this number can vary greatly depending on the specific industry and structure of your subscription model.
In reality, there is no universal "average" SaaS churn rate.
Here is an example of how churn can vary by industry:
This data on the average customer churn rate by industry is based on 1,500 subscription companies in 2018.
The biggest variations in churn depend on whether services are B2B or B2C.
B2B SaaS subscriptions are typically designed to solve or address a specific business problem.
When SaaS subscriptions successfully solve problems, customers tend to stick around for the long haul.
As B2C subscription services, such as Netflix and Disney+, are not essential, churn is often higher.
As a general rule of thumb, you should aim to maintain an average churn rate of between 3% and 8%.
A churn rate of 3% or lower is considered excellent, while a churn rate of 8% or higher is cause for concern.
Of course, these are just general benchmarks. The ideal churn rate for your SaaS business will depend on a number of factors, including your specific industry and business model.
If you're going to get obsessed over a SaaS metric, this is the one to focus on.
While it's easy to brush off a high churn rate as being acceptable, it's important to understand the potential implications of a high churn rate.
A high churn rate can jeopardize the long-term sustainability of your business by eating into your customer base and preventing you from achieving scale.
High churn combined with high CAC (Customer Acquisition Cost) is a death sentence for a SaaS business.
Even without a high CAC, persistently high churn can still stunt the growth of your business.
To put your churn rate into perspective, ask yourself this question:
If my churn rate stays the same and I'm unable to acquire new users, how long will it take for my business to run out of customers?
If the answer is not long, then you have a problem.
Let's move away from the doom and gloom and offer a practical solution.
When your SaaS business faces a pressing threat, a practical solution is always the answer.
This is where Raaft comes in.
Raaft enables you to collect user feedback and save customers with retention flows.
This is a must-have solution for SaaS founders looking to identify retention opportunities.
Raaft automatically extends offers to customers in your retention flow.
This is your first line of defense against customer churn.
If you are interested in learning more about how to reduce SaaS churn with Raaft, take our platform for a free test drive today.
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