Questions

What is a normal churn rate for b2b saas company with an average monthly revenue of $850 per customer? Is 10% of the total monthly sales high or low?

8answers

10% of the total monthly sales churning on an absolute basis is near fatal. That means that within 5 months, you have 50% absolute churn per year, which reveals fundamental flaws with the service itself.

Anything above small single digit churn is telling you and your team that customers are not seeing enough value in your product. I'd start by doing as many exit interviews as you can with those that have churned out, including, offers to reengage at a lower price-point while you fix the issues that matter to them.

Happy to talk through this in more detail in a call.


Answered 10 years ago

In the SaaS world churn is just a fact of life. When it's so easy to sign up and to cancel services people are always going to leave.

I've been involved with many large SaaS companies and generally speaking, the lower the cost of the product, the higher the churn rate. This basically has to do with a whole lot of psychological stuff which, all summed up basically says: The bigger the decision the bigger the cost of having to change your mind.

Churn as a proportion of sales is definitely an important metric, and 10% isn't the best score. It's also not fatal.

What you really need to be paying attention to is the cause of the churn. You need to roll your sleeves up and understand WHY people are leaving and whether it has to do with something you're doing, something you're not doing... or it's just not a great fit for them and they naturally drop off.

Once you've identified the cause of the churn, you have a lot of really exciting options as to how you can cut back on the churn.

As a SaaS company, you have the ability to see exactly how every single customer uses your product, to feed that into a reactive database and to enable that database to reach out to "high risk" customers and to engage them and build a meaningful and successful relationship with them.

I won't lie and tell you that it's simple, or that you an swallow a magic pill and cut your churn rate in half... But by listening to your customers and working with people who "get" customer engagement you can reduce churn, increase customer satisfaction, and increase your bottom line.


Answered 10 years ago

My professional opinion, powered by research:
- In 2011, Pacific Crest surveyed SaaS businesses about churn rates and more than 75% had an annual churn rate below 5%.[1]
- If you are targeting SMBs, conventional wisdom is an annual churn rate of 15% is good (1.17% monthly)[2].

[1] http://www.pacificcrest-news.com/saas/Pacific%20Crest%202011%20SaaS%20Workshop.pdf
[2] http://blog.hopkins.io/2014/03/20/churn/


Answered 10 years ago

The normal churn rate for a B2B SaaS company can vary depending on factors such as industry, target market, customer satisfaction, and product offering. However, a commonly cited benchmark for SaaS churn rates is around 5% - 7% annually for established companies, though it can be higher for newer or smaller companies.

To calculate the churn rate, you would typically use the formula:

Churn Rate=Number of Customers LostTotal Number of Customers at the Beginning of the Period×100%Churn Rate=Total Number of Customers at the Beginning of the PeriodNumber of Customers Lost​×100%

Given that you have an average monthly revenue of $850 per customer, if you're experiencing a 10% churn rate of total monthly sales, it means that 10% of your customers are churning each month. To put this into perspective:

If you have 100 customers:

Monthly Revenue: 100 customers * $850 = $85,000
Churned Revenue: $85,000 * 10% = $8,500

So, you're losing $8,500 in revenue each month due to churn.

Whether a 10% churn rate is high or low depends on various factors, including industry benchmarks, the stage of your company (early-stage companies may have higher churn rates as they iterate on product-market fit), and your company's growth goals. Generally, a 10% monthly churn rate would be considered high for most B2B SaaS companies, as it would lead to significant revenue loss over time if sustained. It's important to monitor churn closely and implement strategies to reduce it, such as improving product quality, enhancing customer support, and implementing retention initiatives.


Answered 2 months ago

anything >10% a YEAR would already be somewhat a concern for me (I do M&A of B2B SaaS companies)

10% a month is a big issue, either the product disappoints, the price is too high, or the engagement model isn't suited for SaaS and should be a one time purchase.


Answered 8 years ago

10% is considered to be pretty dangerous, to be honest, especially if the monthly value is 850. You should analyze your entire funnel to see where the customers are dropping off the most and then fix that part of it. You can use tools like cohort analysis, mixpanels, etc. for that.


Answered 7 years ago

How does the churn looks to total customers? 10% of monthly new sales does not sound that bad. Based on the current customers, the annual churn could be as low as 5% in your example, which would be amazingly good for most b2b SaaS companies.


Answered 4 years ago

In these pandemic times when economies are tumbling down and the whole world is going through recession nothing is normal anymore, but I will give you what is acceptable. In line with my experience, Bessemer Venture Partners says an “acceptable” SaaS churn rate is in the 5 – 7% range ANNUALLY, depending upon whether you measure customers or revenue. And BVP’s assertion is backed up by Pacific Crest in their Private SaaS Company Survey Results that show roughly 70% of SaaS companies in their survey had annual churn in the < 10% range, with 75% of those at 5% or under. The way I read the results of Pacific Crest’s survey is that 30% of SaaS providers surveyed have an unacceptable level of churn. Now, just so we are on the same page, 5% – 7% Annual churn – the good churn rate – translates to 0.42 – 0.58% monthly churn. This means companies with “acceptable” churn, lose only about 1 out of every 200 customers (or dollars) per month.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath


Answered 4 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2024 Startups.com LLC. All rights reserved.