What is a Good Churn Rate for SaaS?

A startup founder jumps for joy as her SaaS product hits 1,000 users. A month later, she’s pulling her hair out—50 customers have left. Is this normal? Disastrous? Or perhaps even good? When it comes to churn rates in the SaaS world, the answer isn’t always clear-cut.

Here’s the truth: there’s no universal “good” or “bad” churn rate. Your ideal churn rate is as unique as your business model, target market, and growth stage. It’s more about setting your own benchmark and consistently improving upon it.

That said, we understand the desire for context. While you shouldn’t obsess over industry averages, they can provide a useful reference point. In this essay, we’ll share some typical churn rate ranges to give you a general idea of where you might stand.

But numbers alone don’t tell the whole story. We’ll also delve into the various factors that influence churn rates. Understanding these can help you interpret your own churn rate more effectively and develop strategies to improve it.

Industry Benchmarks For Churn Rate For B2B SaaS Companies

Lower price points typically see higher churn rates due to lower switching costs and less commitment from customers.

Nathan Latka’s website provides a detailed breakdown of acceptable churn rates based on the price point of the SaaS product. Here are the benchmarks:

• Acceptable Churn Rate: Up to 30% annually.
• World-Class Churn Rate: Under 5% annually.
• Average Churn Rate: 40%.

• Acceptable Churn Rate: Up to 20% annually.
• World-Class Churn Rate: Under 3% annually.
• Average Churn Rate: 38%.

• Acceptable Churn Rate: Up to 10% annually.
• World-Class Churn Rate: Under 1% annually.
• Average Churn Rate: 17%.

• Acceptable Churn Rate: Up to 5% annually.
• World-Class Churn Rate: Under 1% annually.
• Average Churn Rate: 19%.

According to another report, the median annual churn rate for B2B SaaS companies is approximately 4.67%. This means that a good benchmark for annual churn is around 5% or less. For larger enterprises, the monthly churn rate is generally closer to 1%. Larger companies tend to have more stable contracts and higher switching costs, leading to lower churn rates.

Calculating Churn Rate

The basic churn rate formula is —

Churn Rate = (Number of Customers Lost During Period) / (Number of Customers at Start of Period) x 100

Let’s say it’s March 1st, and you’re looking at February’s churn rate. You had 1,000 customers on February 1st, and by February 28th, 30 customers had cancelled their subscriptions.

Your churn rate would be: (30 lost customers / 1,000 starting customers) x 100 = 3%

This means you lost 3% of your customers in February.

Now, let’s add some real-world complexity where you’re gaining customers while also losing some.

During February, while you lost 30 customers, you also gained 50 new ones. Your ending customer count is 1,020. Some companies might use the average customer count for a more accurate picture:

Churn rate = (30 / ((1,000 + 1,020) / 2)) x 100 = 2.96%

So here, the formula is —

Churn Rate = (Customers Lost) / ((Customers Start + Customers End) / 2) x 100

Let’s take a scenario where not all customers are equal. Let’s say of the 30 customers you lost:

• 20 were on the $10/month basic plan
• 8 were on the $50/month pro plan
• 2 were on the $200/month enterprise plan

Total revenue lost = (20 x $10) + (8 x $50) + (2 x $200) = $800

If your monthly recurring revenue at the start of February was $50,000, your revenue churn rate would be:

($800 / $50,000) x 100 = 1.6%

This shows that while you lost 3% of customers, you only lost 1.6% of revenue, indicating your higher-value customers are sticking around.

If your product is popular in certain months only, you might see higher churn in other months. In this case, comparing month-on-month might not be useful. Instead, you’d want to compare the same months in different years.

If your product offers a free trial, you need to decide whether to count trial users in your calculations. Including them might inflate your churn rate, as many trial users naturally drop off. You might choose to only count customers who convert to paid plans.

Remember, the key is consistency in your calculation method. Whatever approach you choose, apply it consistently over time to ensure you’re comparing apples to apples when analyzing trends.

Factors Affecting Churn Rate

Type of product

The type of SaaS product significantly influences churn rates.

Consider Salesforce, a CRM platform deeply integrated into many businesses’ sales processes. Its churn rate is typically low because replacing it would disrupt operations and require extensive retraining. In contrast, a tool like Grammarly, while useful, is not mission-critical for most businesses, potentially leading to higher churn.

Products with network effects, such as Slack, become more valuable as more team members use them, reducing the likelihood of churn. Similarly, data-heavy platforms like Tableau become more indispensable over time as companies accumulate years of analyzed data within the system.

The industry also matters. HR software like Workday often sees lower churn rates in large enterprises due to the complexity of implementation and the critical nature of payroll and employee data management. On the other hand, simple task management tools for individuals or small teams might experience higher churn as users can more easily switch to alternatives without significant disruption.

Competition

The competitive landscape significantly impacts SaaS churn rates. Take the project management software market, where tools like Asana, Trello, and Monday.com compete fiercely. This crowded space can lead to higher churn as customers have many options and can easily switch if they’re dissatisfied.

Dropbox faced increased churn when Google Drive and Microsoft OneDrive entered the cloud storage market, offering similar services often at lower prices or bundled with other products. This illustrates how new entrants with strong brand recognition can disrupt established players.

In the video conferencing sector, Zoom’s rapid rise during the pandemic led to churn for other providers like Skype and GoToMeeting. Zoom’s ease of use and reliability attracted users away from competitors, showing how superior product features can drive market shifts.

Conversely, in niche markets with high barriers to entry, like specialized medical imaging software, companies may experience lower churn due to limited competition and the specialized nature of their product.

Economic conditions

Economic conditions significantly influence SaaS churn rates. During the 2008 financial crisis, many businesses cut non-essential software subscriptions. Customer relationship management (CRM) tools like Salesforce, however, often retained customers as they were viewed as critical for maintaining sales in a tough economy.

The COVID-19 pandemic had varied effects. While many companies reduced spending, leading to higher churn for some SaaS products, others saw increased demand. Zoom, for instance, experienced explosive growth as remote work became necessary. Conversely, software serving the travel industry, like booking systems, saw higher churn rates as the sector contracted.

Economic downturns can also drive the adoption of cost-saving SaaS tools. For example, expense management software like Expensify might see lower churn or even growth during recessions as companies seek to control costs more tightly.

Subscription box services like Blue Apron often see higher churn during economic downturns as consumers cut discretionary spending, illustrating how B2C SaaS can be particularly vulnerable to economic shifts.

Seasonal business cycles

Seasonal business cycles significantly impact churn rates for certain SaaS products. Tax preparation software like TurboTax or H&R Block’s online services experience high usage during tax season but may see increased churn in off-peak months as users question the need for year-round subscriptions.

E-commerce platform Shopify often sees a surge in new merchants signing up before the holiday shopping season but may experience higher churn rates in January and February as some seasonal businesses close shop.

Educational technology platforms like Blackboard or Canvas might face higher churn risks during summer months when many schools are not in session, potentially prompting institutions to reassess their subscriptions.

Fitness apps like MyFitnessPal or Strava might see increased churn after New Year’s resolutions wear off, typically in late February or March.

Agricultural software, such as Granular or Farmers Edge, may experience seasonal usage patterns aligned with planting and harvest seasons, potentially affecting renewal decisions during off-seasons.

Technological shifts

Technological shifts can dramatically impact SaaS churn rates. The rise of cloud computing led to increased churn for on-premise software providers. For instance, many businesses moved from locally hosted email servers to cloud-based solutions like Google Workspace or Microsoft 365.

The advent of artificial intelligence and machine learning has impacted various SaaS sectors. In the customer service industry, some companies have switched from traditional helpdesk software to AI-powered solutions like Intercom or Zendesk, which offer chatbots and predictive customer support.

The shift towards mobile-first strategies has also influenced churn. Website builders like Wix or Squarespace, which offer mobile-responsive designs out of the box, have attracted customers away from older, less mobile-friendly platforms. Blockchain technology is beginning to impact sectors like supply chain management, potentially leading to churn for traditional SaaS providers in favor of blockchain-based solutions.

Don’t let another day of preventable churn slip by

Tackling churn on your own can be like trying to solve a Rubik’s cube blindfolded. You might eventually get there, but at what cost? Time, effort, and countless headaches later, you might find yourself wishing you’d called in the cavalry sooner.

This is where Inturact comes in.

Inturact specializes in turning your SaaS churn challenges into growth opportunities. Sure, it’s an investment, but think of it this way: while you’re focusing on what you do best—building and improving your product—Inturact is working behind the scenes to keep your customers sticking around and your revenue growing.

We dive deep into your product user data, analyzing the five key pillars of the customer journey: Acquisition, Activation, Revenue, Referral, and Retention. Whether you’re drowning in data you can’t interpret or you know you have issues but aren’t sure where to start, Inturact has got your back.

You don’t have to wait years to see results. As your churn rate drops and your revenue grows, you’ll quickly realize that partnering with Inturact wasn’t just an expense—it was a smart business move that’s paying for itself.

In the fast-paced world of SaaS, sometimes the smartest move is knowing when to call in the experts. Schedule a chat with Inturact today and discover just how much you could slash your churn rate. Don’t let another day of preventable churn slip by.