B2B SaaS Churn Rate Benchmark Guide: What is a Good Average Churn Rate and How to Improve
B2B SaaS companies are constantly striving to increase their customer base and grow their business, but customer churn can pose a significant threat to their success.
To assess their performance and identify areas for improvement, companies often look to industry benchmarks for churn rates. However, what is a good average churn rate and how can B2B SaaS companies like you can improve churn rates to stay competitive?
In this blog post, we will explore the concept of churn rate benchmarking and what it means for businesses. We will discuss the average churn rates in the B2B SaaS industry, factors affecting churn rates, and the importance of benchmarking.
We will also provide tips and strategies for improving churn rates and tools for monitoring and measuring churn rates. By the end of this post, you will have a better understanding of what an average churn rate is and how to improve it.
What is Churn Rate?
The churn rate is the percentage of customers who unsubscribe or stop using your product or service within a given time period. This metric helps measure customer satisfaction and loyalty and provides insight into how well your product or service is performing in the marketplace.
A high churn rate means that customers are not as satisfied with your product or service as they should be, while a low churn rate could indicate that customers are enjoying their experience and are more likely to stay loyal to your brand in the long run.
To calculate customer churn, divide the number of customers who have “churned” (ended their subscription) by the total number of customers.
For instance, if you have a total of 100 customers and 5 ended their subscriptions last month, your customer churn rate is 5%. This metric is also known as “logo churn.”
Net logo churn
To get an even more precise calculation, use the net logo churn metric, which takes into account the new customers acquired over a given period.
Calculate it by dividing the total number of churned customers minus the new customers acquired, by the total number of customers.
For example, if your business has 100 customers, 2 ended their subscription last month while 7 new customers were acquired, then your net logo churn rate is 5%.
Customer retention is a great overall metric to monitor customer base and product experience. However, since it doesn’t provide direct insight into the revenue affected by churned customers, it’s often combined with a revenue churn rate for a better picture.
Revenue churn rate
The revenue churn rate measures the percentage of lost revenue due to downgrades, cancellations, payment failures and other reasons.
Calculate it by dividing the total churned revenue over a period by the total revenue at the beginning of that period.
For example, if your business’s total revenue is $500 and your churned revenue is $100, then your revenue churn rate is 20%. What sets revenue churn apart from customer churn is that it takes into consideration different pricing tiers you set for subscription models – something customer churn doesn’t measure.
There is also net revenue churn which measures the revenue generated from expansions like upsells, add-ons or tier upgrades. This offers more precise insights into the actual lost and gained income – calculate it by dividing the total churned revenue minus expansion revenues by the total revenues at the start of a period.
As a B2B SaaS provider, you must actively and consistently monitor your churn rates in order to effectively assess their performance and success in the market. You can utilize customer service measures as well as pricing and product development strategies to minimize customer attrition. By understanding the B2B SaaS industry churn rate, you can better identify areas on which you need to focus in order to both acquire new customers and attain long-term retention from existing customers.
B2B SaaS Churn Rate Benchmarking and Its Importance
Churn rate benchmarking in the SaaS industry is the practice of comparing a company’s customer churn rate to industry standards and competitors.
Below are a few of its benefits:
- It helps you gain insights into how well you are retaining customers and identifying opportunities for improvement.
- It allows you to compare your performance against competitors in order to make sure you remain competitive in the market.
- It helps improve performance and adapt procedures if necessary, as well as provide key insights about customer satisfaction levels with regard to your SaaS tool.
Types of Churn Rates for B2B SaaS Businesses
There are several different types of B2B SaaS churn rates that you need to take into account when benchmarking your performance against industry averages. Note that churn can have different effects on organizations of different sizes, which is why it’s important to be familiar with average churn ranges relative to the size of your company. These include:
- Logo churn rate (the percentage of customers who have canceled their subscriptions): Generally speaking, small companies typically see higher churn rates falling in the range from 3%-7%, while larger corporations are often looking at more acceptable rates between 1%-2%.
- Net revenue churn rate (the total amount lost due to customer cancellations): Smaller companies should anticipate a net revenue churn rate of 10-15%, while larger companies typically experience rates closer to 5-7%.
- Gross MRR (monthly recurring revenue gained from new subscriptions minus cancellations): For smaller companies, their average gross MRR typically ranges from 2-2.5%, while larger companies often have lower rates of just 1%.
- Net MRR (monthly recurring revenue gained from new subscriptions). Most companies hover around a net MRR of 2%, and it’s important to know that number to ensure healthy cash flow and growth potential.
All these metrics should be taken into account when calculating average churn rates for B2B SaaS businesses.
Factors affecting B2B SaaS churn rate
Multiple factors have been identified to have an impact on the B2B SaaS churn rate, including:
- Customer feedback about the service: If customers are not satisfied with the product or service, they may look for alternatives and leave you for another provider.
- Pricing: Too high of a price point can drive away potential customers, while too low of a price point can be seen as insufficient value.
- Lack of communication: Poor customer service, communication breakdowns, and slow response times can all lead to lost customers.
- Product fit: If the product or service does not meet the needs of the customer’s business, they may choose to look for an alternative solution from another provider.
- Poor onboarding experience for new customers: Poor onboarding processes can lead to customer dissatisfaction and attrition.
- Inadequate customer support: Customers may leave if they are unable to get the help they need when they have a problem or question.
- Contractual complications: Long and complicated contracts can be difficult to understand, leading customers to look for other options.
- Voluntary or involuntary churn: Voluntary churn is when a customer chooses to leave a service or product, while involuntary churn occurs when customers are forced to cancel due to changes in the market, their own circumstances, or other outside factors.
- Product type: Different types of SaaS products have different churn rates, based on the difficulty of replacing them with a similar product.
- World events: Uncertainties due to macroeconomic events or global issues can have a significant impact on customer churn. The COVID-19 pandemic, for example, caused many businesses to re-evaluate their spending and may have led some to cancel their subscription.
By monitoring this data closely and using it to make informed decisions regarding product features and offerings, you can reduce overall churn rates significantly over time.
What is a Good Average Churn Rate for B2B SaaS Companies?
The B2B SaaS churn rate has been a trending topic of interest in recent years. On average, B2B SaaS companies face an estimated 4.67% annual churn rate.
Hence, a good B2B SaaS churn rate is generally considered to be around 5% or less. This means 95% of B2B SaaS users choose to stick with the company’s products or services and derive ongoing value from them. Although churn rates can change between industries, achieving that magic 5% number within B2B SaaS will help foster greater customer loyalty and create more opportunities for scale over time.
B2B SaaS’ annual churn rate tends to be lower than B2C SaaS companies. This is likely due to the fact that B2B customers are often more committed and have higher customer lifetime values.
Additionally, B2B SaaS companies strive to keep their customer churn rate low in order to ensure customer retention, maintain revenue, and ultimately grow the business.
B2B SaaS companies can have drastically different churn rates, depending on a number of factors as follows:
The quality of support offered to users is one thing that significantly impact churn rate – B2B software customers often require more complete solutions than B2C customers, which need to be supported by experienced professionals in order for websites to remain satisfied and active.
Other factors such as the volume of downgrading options available or the flexibility in payment plans can also lead to higher or lower customer retention.
Additionally, B2B SaaS companies that are able to easily scale their products based on customer needs will likely retain them longer since they’re not locked into an inflexible product. The lifecycle of B2B SaaS customers is often much longer than B2C apps, making it even more important for B2B SaaS businesses to focus on churn rate and customer satisfaction.
How to Improve B2B SaaS Churn Rates
Below are several steps that you can take to reduce customer churn and improve retention:
- Increase annual contracts by highlighting the savings compared to monthly plans and offering attractive discounts. You can also incentivize customers to stay by making sure they understand all the benefits – not just the monetary ones – of renewing their contract.
- Improve customer communication and support by providing helpful onboarding, clear documentation, and thorough FAQs.
- Increase transparency by having open conversations with customers about product updates, bug fixes, and other important news.
- Provide customers with more flexibility in their subscription plans to better meet their needs while also reducing their risk of churning.
- Enhance customer experience by using feedback to make necessary changes or improvements to the product.
- Analyze customer data to identify potential churning customers and develop strategies for retaining them.
- Monitor customer satisfaction and address any issues quickly and effectively.
- Utilize upsells and cross-sells to increase revenue without spending more on new leads.
- Reduce involuntary churn with a solid plan. Involuntary churn, or loss of customers due to external factors such as economic downturns, can be avoided with the right strategies such as providing payment plans, discounts, or credits.
- Improve onboarding processes for better customer experience. You can implement automated onboarding processes that walk customers through their first few interactions with the product or service.
- Leverage offboarding experiences and personalized cancel flows to understand user churn and minimize business impact.
Tools for Measuring and Monitoring B2B SaaS Churn Rates
The B2B SaaS churn rate is a worrisome issue today as companies can lose valuable clientele if they don’t effectively monitor their B2B SaaS customers. Here are a few options:
- ChartMogul: ChartMogul is a subscription analytics platform that provides businesses with real-time insights into their customer churn rates. It integrates with popular billing and CRM platforms to track customer behavior and revenue metrics.
- ChurnZero: ChurnZero is a customer success platform that helps businesses reduce customer churn rates by identifying at-risk customers and automating targeted retention campaigns. It provides real-time insights into customer behavior and engagement.
- Baremetrics: Baremetrics is a subscription analytics platform that provides businesses with real-time insights into their revenue, churn, and customer behavior. It integrates with popular billing platforms and provides detailed reporting and analytics.
- Mixpanel: Mixpanel is a business analytics platform that helps businesses understand customer behavior and improve customer engagement. It provides insights into churn rates and customer retention, as well as tools for targeted retention campaigns.
- ProfitWell: ProfitWell is a subscription analytics platform that helps businesses reduce churn rates and increase revenue. It provides detailed reporting and insights into customer behavior, as well as tools for retention campaigns and pricing optimization.
These tools can help businesses monitor and track their churn rates, identify at-risk customers, and implement targeted retention campaigns to improve customer retention and reduce churn.
It is important that you allocate resources to accurately measure, monitor, and optimize your churn rates as it can be incredibly difficult to generate new customers without first retaining existing ones. Analyzing customer trends such as renewal cycles, user engagement, and subscription plans allows you to anticipate retention risks and respond quickly before the risk becomes reality.
The importance of benchmarking average churn rates for B2B SaaS businesses cannot be overstated. This metric serves as a reliable indicator of customer loyalty and overall business health, providing key insights into how well your product or service performs in the market. By taking into account logo, net revenue, gross MRR, and net MRR churn rates when benchmarking performance against industry averages, you can gain invaluable insight into customer satisfaction levels so that you can make necessary improvements if needed.
B2B SaaS churn rate benchmarking is also an essential practice for any SaaS company looking to improve its customer retention and stay competitive in the market. You should focus on improving your customer retention strategies, such as providing excellent customer service, offering competitive pricing, and regularly updating and improving their products and services.
Using tools and software to monitor churn rates and identify at-risk customers can also help reduce churn. With this information at hand, you will be better equipped to ensure success in the long run!
Check out our blog for more tips on growing your SaaS.