How to Measure and Analyze Your SaaS Churn

Understand the four types of SaaS churn, how to calculate each type, and what we believe are the best ways to increase your growth ceiling.

Scott Hurff

Scott Hurff

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Building a bigger SaaS business requires a blend of maximizing growth while cutting churn. Without a firm understanding of the four types of churn, you won’t be able to improve customer retention. 

Which really means that your business will crash into a growth ceiling sooner than later. 

But it doesn’t have to be that way. Let’s walk through the four types of SaaS churn, how to calculate each type, and what we believe are the best ways to increase your growth ceiling.

The Four Types of Churn

There are four types of churn. Here’s a quick recap:

  1. Customer Churn: The percentage of your customer base you lose during a given time period. 
  2. Revenue Churn: The percentage of revenue you lose during a given time period.
  3. Involuntary Churn: The percentage of customers whose payment methods fail, resulting in a cancelled subscription.
  4. Voluntary Churn: The percentage of customers who cancel by choice.

(PS — at Churnkey, we can conduct a free audit of your churn. We calculate it for you, break it down, and analyze it so you can take action and learn how it stacks up against your peers.)

Actionable Methods to Analyze Your Churn Rates 

Looking at your churn rate as an average across your entire user base does not help you diagnose the cause of churn. 

Breaking down churn by segmenting your user base will give you better insight into why your users are leaving. We suggest analyzing your churn rate by:

  • Cohorts
  • Subscription plans
  • Billing intervals

Churn Rate by Cohorts

A cohort is a group of customers with common experiences or characteristics.

Churn rate analysis by cohort allows you to gain targeted insights into how, when, and why someone is using your SaaS solution. There are two types of cohorts that can be used for churn rate analysis:

Behavioral Cohort Analysis

Segment your customers into cohorts based on specific behaviors and interactions with your SaaS solution. Consider dividing your users into cohorts based on repeated behaviors, most frequently used features, reactions to price or product changes.

Why analyze churn by behavioral cohorts? Gain insights into how your customers interact with your products. Analyze what behaviors your most and least engaged customers have in common and identify trends. 

Acquisition Cohort Analysis

Segment your customers into cohorts based on when they signed up to your SaaS product. You can divide customers into acquisition cohorts based on when they signed up, cancelled, or renewed their subscription.

Why analyze churn by acquisition cohort? Gather insights on when in the user lifecycle your customers tend to unsubscribe. You can focus on:

  • How seasonality affects churn rates
  • When high churn rates are most common

Churn Rate by Subscription Plan

Churn rate analysis by subscription plan determines the number of customers who stop paying for your product within a given time period. 

Why analyze churn rate by subscription plans? Do it, and you’ll get insights on:

  • When a user stops getting value from your product
  • Which plans churn the most
  • What effect price changes have on churn rate
  • What effect product changes have on the churn rate

(PS — with Churnkey, you can analyze churn by subscription plan right at the source. When you plug in your Stripe account, we will review your SaaS churn rate and identify opportunities for improvement. All for free and within three business days.)

Churn Rate by Billing Interval (i.e. Monthly vs. Annually)

Measuring churn rate by billing interval gives you insight into the number of churned subscribers during the corresponding billing cycles. If you have different payment plans, segment your user base by their billing intervals. 

You should expect that your highest churn rate will be within the first subscription period. This is especially true if a subscription starts with a free trial period. Depending on your SaaS product, customer base, and pricing, your billing intervals will have a different effect on churn.

There are both technical and behavioral impacts on churn rates for billing intervals:

  • Technical (involuntary churn): expired credit cards or unsuccessful payment processing leading to subscription suspension
  • Behavioral (voluntary churn): end of free trial, forgotten subscription, customers leave because they feel trapped in their subscription

Why analyze churn rates by subscription plan? Gather insights on:

  • Customer attitudes towards price changes
  • Recurring technical issues
  • Whether annual or monthly plans are being cancelled at a higher rate
  • Whether customers need more engagement when approaching renewal

How Does Your Churn Rate Stack Up to Your Competition?

How do you know if your churn rate is good or not? Industry benchmarks that you can refer to are:

  • The industry average for B2B company churn rates = 5%
  • The industry average for B2C company churn rates = 7.05%.

An acceptable churn rate for your SaaS solution will vary, partly based on your:

  • Number of impulsive subscribers
  • Subscription plan prices
  • Volumes of subscriptions

The free Churnkey Churn Audit provides these qualitative benchmarks for your B2C, B2B and prosumer SaaS products.

Churn Reports That Analyze Growth

Use the insights from calculating and benchmarking your churn to get to the bottom of why your users are churning. 

The free Churnkey Churn Audit not only takes care of calculating your churn and breaking it down by cohorts, but also provides:

  • Involuntary churn report
  • Voluntary churn report
  • Growth ceiling calculation report

Involuntary Churn Report

This report shows you how many customers churn due to inactivity. Involuntary Churn usually indicates a problem with user engagement. It's best to look at this metric through the lens of how high or low touch your product is.

The reasons for involuntary churn fall into one of two categories:

  1. Failed payment transaction: technical failure to charge the credit card due to expiration, inaccurate information, or insufficient card balance — it's important to make sure you have a dunning solution to mitigate this
  2. Failed tax validation check: the customer’s information was not updated to meet the validation check criteria

Voluntary Churn Report

This report shows you how many customers choose to churn. It gives you the reason for the cancellation:

  1. They do not renew their subscription
  2. They cancel their subscription

The report will also shed light on why they chose to opt out of your SaaS solution. There are several possibilities: 

  • The product doesn't meet expectations: you either attracted the wrong type of user or your product doesn't provide the features they expected or needed
  • Lack of customer support: a poor onboarding experience or a lack of relevant content for ongoing product training
  • Competitors: customers believe your competitors offer a better product
  • Pricing: your product price is not optimized for value

Asking your customers why they are turning away from your SaaS is one of the best ways to understand the root causes of their issues and concerns. Solutions like Churnkey will give you an overview of how many customers are getting into the unsubscribe flow, how many are being redirected and "rescued," and how many are ultimately unsubscribing.

With just one line of code, Churnkey takes care of your offboarding flow and provides your product stakeholders with a simple dashboard for reporting and configuration. Find the reasons users are churning, take action, and improve your churn.

Growth Ceiling Calculation Report

Many SaaS founders focus on growth, and while growth is an important metric, it has a ceiling. Churn needs to be in balance here while you are working on growth. If your churn rate is low, it may take a long time to reach your growth ceiling. Therefore, a good churn rate can increase your growth ceiling. 

Your growth ceiling is the highest revenue your SaaS could reach in the current situation and at its current churn rate. Churn needs to be in balance here while you work on growth.

Effectively Calculate and Analyze Churn to Grow Your Business

Reducing customer churn is the best thing most SaaS companies can do right now. But knowing where to start is half the battle. Looking at your churn rate from different angles is essential so you can take action and learn how your churn rate compares to your competitors. 

With our free churn audit, we'll take care of your churn calculation and analyze your churn so you can focus your resources on improving your product/service.

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