Churn kills SaaS Companies. It definitely keeps SaaS execs up at night. It erodes revenue and profitability. It means that some percentage of new customers will flow out the bottom of a leaky bucket. And since it costs between 5 and 25 times more to acquire a new customer than it does to keep an existing one according to Forbes and HBR, churn is a topic that inevitably comes up when SaaS company founders get together.
Aydin Mirzaee would know. As co-founder of Fellow.app (a toolkit for managers and their teams to power their 1-on-1s, team meetings, feedback, goals/priorities and a whole lot more), co-founder and past co-CEO of FluidSurveys and Fluidware, and board member of Fresh Founders and Invest Ottawa, he’s regularly in touch with other SaaS founders. As Aydin explains, SaaS founders know their churn rate should be low. They know they probably want it lower than it is today. But, they wonder, what should it really be, and how can they get it there?
Good news. There are 3 questions you can ask to see if your churn rate is in the right ballpark. But before we dive into those, let’s make sure we’re on the same page for how we define churn, and its more optimistic cousin, retention.
Churn is the amount of revenue or the number of customers you lose over a given period of time, for example a month or a year.
Retention is just the opposite – the amount of revenue or the number of customers you retain over a given period of time. There are 2 important distinctions to measuring revenue retention, gross retention and net retention:
While there are many nuances depending on your company’s specific context, here are three questions you can ask to see if your churn rate is in the ballpark, informed by SaaS Capital data from across 700 B2B SaaS companies. And based on how you compare, there are concrete actions you can take to increase retention and reduce churn.
So there you have it: three questions you can ask to get a better sense of what your churn rate should be, and some concrete actions you can take to plug that leaky bucket, reduce churn, increase retention, and ultimately get a better night’s sleep.
If you want to take the next step to crush churn and increase retention, reach out! I can help you determine what your ideal churn rate should be, and what the root causes of your current churn are. Spoiler alert! the most common causes of churn are customer on-boarding and adoption, customer success practices, product issues, or sales and marketing challenges.
I work with an incredible cross-functional team of experts at Stratford Managers, so no matter what the root cause of your churn, we have the expertise to help you build and implement the right plan to crush it.
And if you’re in the Ottawa, Canada area, check out these two Meetups where you can connect with others who are out to crush churn:
About the author
Lauren Thibodeau, VP SaaS Customer Experience
|Lauren works with SaaS companies on strategic customer experience initiatives that increase user adoption, elevate customer success, and deliver customer value. Prior to joining Stratford Managers, Lauren held leadership and executive roles in global strategy, customer experience, and enterprise learning and adoption at Cognos, IBM, Parametric Technology Corp, and Kinaxis.|
Connect with Lauren: firstname.lastname@example.org
Forbes: Don’t Spend 5 Times More Attracting New Customers, Nurture the Existing ones
HBR: The Value of Keeping the Right Customers
SaaS Capital: Churn Benchmarks for B2B SaaS Companies