What is the average churn rate in SaaS?
The average monthly churn rate for SaaS businesses is around 5%.
This translates to ~40 - 50% annual churn.
If you think about this number, it's crazy. It means that SaaS businesses lose half of their customers every year.
However, this number can vary greatly depending on the specific industry and structure of your subscription model.
Enterprise deals and Annual plans have significantly lower churn than consumer products or monthly subscriptions.
In reality, there is no universal "average" SaaS churn rate.
What is the average churn rate by industry?
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.
What is a good monthly churn for SaaS?
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.
What is an acceptable churn rate?
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 Customer Acquisition Cost (CAC) 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.
Is SaaS churn ever acceptable?
The reality is that some level of churn is inevitable for all subscription businesses.
The key is to keep your churn rate as low as possible while still acquiring new customers at a profitable rate.
There is no magic number that determines whether or not a SaaS business is doing well. It all comes down to understanding the underlying reasons for your churn and taking action to address them.
The best way to reduce churn is to focus on customer retention and ensuring that your customers are getting value from your service.
There are a number of strategies you can use to improve customer retention, including:
- Enhancing the user onboarding experience
- Offering one-to-one product demos
- Providing excellent user support
- Delivering regular updates and new features
- Creating a loyalty program
Customer churn is a complex issue, and there is no one-size-fits-all solution.
The best way to approach it is to take a data-driven approach and continuously test different retention strategies to see what works best for your business.
Let's move away from the doom and gloom and offer a practical solution.
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.
Straight off the bat, here are a few key takeaways:
- The average churn rate for SaaS businesses is 5% annually.
- Churn rate is a lagging indicator, which only offers insights into the past.
- You should aim for an average churn rate of between 3% and 8%.
Let's dive in deeper and break these points down.
Average Churn Rate For Subscription Services (Why Does It Matter?)
You cannot fill a leaking bucket
Think of a user base suffering from high churn as a leaking bucket.
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.
Churn is a major headwind for SaaS businesses
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
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.
Creates a clear benchmark
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 to the lifetime value of users, a high churn rate can also throw the sustainability of user acquisition strategies into question.
How To Promote SaaS User Retention
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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