The difference between B2B & B2C churn rates

As a leader of an online subscription business, you are probably already familiar with the concept of "customer churn" and its considerable impact on your company's profitability.

At ChurnKey, we recognize the importance of keeping your churn rate at bay. It determines how big your business can grow at the end of the day - regardless of whether you run a B2B or B2C company.

In this article, we will cover key definitions and industry benchmarks, as well as the difference between B2B, B2C, and prosumer churn rates.

What Does "Churn" Mean for an Online Subscription Business?

The term "churn" refers to the rate at which a subscription business loses its subscribers when the subscription expires or when it is canceled. 

The loss of subscribers ultimately leads to revenue loss. Therefore, churn rate is an important indicator of the company's long-term success.

Moreover, churn rates relate directly to the LTV (customer lifetime value) for your subscription business. Minimizing churn rates increases your LTV and leads to higher ROI in relation to your customer acquisition cost.

If you are looking to boost your subscription-based SaaS company's performance, reducing customer churn should be one of your main priorities.

Revenue vs. Customer Churn

There are two important types of churn: revenue churn and customer churn.

• Revenue churn defines the percentage of revenue lost from customers in a certain time period.
• Customer churn describes how many of your existing customers cancel their subscriptions in a given period of time. The customer churn metric can be used to calculate the average LTV of a subscriber.

Voluntary vs. Involuntary Churn

Customer churn rate can be further subdivided into voluntary and involuntary churn.

• Voluntary churn occurs when a customer decides to cancel a subscription to your services or products. SaaS business owners can reduce voluntary churn by improving customer satisfaction scores. You can also use tools like ChurnKey to offer personalized deals to the customers who decide to unsubscribe.
• Involuntary churn is when customers unintentionally lose access to your products or services. You can't address this type of churn by improving your service or products, as even happy customers can become victims of involuntary churn.

Many subscription businesses make the mistake of focusing solely on voluntary churn. However, according to ProfitWell, 20%-40% of overall churn can be attributed to the involuntary type. 

Involuntary churn can happen for many reasons:

• A customer's credit or debit card gets stolen
• A customer loses his card
• A customer forgets to update their payment information when their debit or credit card expires
• A customer's bank rejects their payment

How to Calculate Churn Rate

There are numerous ways to calculate churn rate, but we recommend keeping things simple.

After you pick a time period to focus on (for example, monthly), you can calculate the churn rate as:

Churn = # of customers that churned in period / Total # of customers at the start of the period.

You can also calculate voluntary and involuntary churn separately and then find the total churn as:

Total Churn = Voluntary churn + Involuntary churn

ChurnKey has an intuitive insights dashboard that lets you see why customers leave at a glance, which deals they take, and who's most at risk. These can help you identify why churn occurs and proceed with devising ways to reduce it.

The Difference Between B2B, B2C, and Prosumer Churn Rates

The most important factor determining if your churn rate is within a normal range is whether your SaaS business sells to other businesses, consumers, or audiences in between.

Churn Rates for B2B SaaS Companies

B2B stands for "business-to-business." B2B SaaS companies sell their services directly to other businesses or, more specifically, they sell to the decision-makers within these other businesses.

On average, churn rates within B2B settings are lower than their B2C counterparts: B2B churn averages at 5.00%, compared to 5.60% total churn rate for subscription businesses.

This lower churn can be attributed to the following factors:

• Higher prices. Generally, software products geared towards businesses are more complex and have a higher price point. This leads to more considered purchase decisions by B2B customers and, as such, lower churn rates.
• Accounting departments. Businesses usually have specialized accounting departments that ensure that the bills are paid on time. As a result, the software is kept around for longer.
• Annual subscriptions. Businesses use software tools on a long-term basis and prefer to buy annual subscriptions, which come with higher renewal rates.

Churn Rates for B2C SaaS Companies

B2C stands for "business-to-consumer." This means that B2C companies sell their services or products directly to customers for personal use.

The average churn rate for B2C subscription companies is around 7.05% - considerably higher than that of B2B companies. Here is why:

• Lower prices. Lower price points of B2C SaaS products mean that consumers are more likely to make an impulsive purchasing decision, which is likely to result in hitting the "unsubscribe" button down the road.
• Simplicity. Individual B2C customers don't need to get approval from the boss before subscribing to a service. Similar to lower prices, the simplicity of making a purchase can lead to impulsive buying.
• Higher volume. B2C companies sell more - which translates into higher churn rates.

Churn Rates for Prosumers

Many SaaS companies cannot be classified as typical B2B or B2C companies. The individuals or companies that fall in between B2B and B2C are called "prosumers."

Prosumers are individuals who purchase tools or subscribe to online tools for potentially professional purposes. Influencers, photographers, podcasters, video creators, and bloggers can all be considered "prosumers."

Not surprisingly, the average prosumer churn rate falls somewhere in between that for B2B and B2C companies.

How to Reduce Churn Rates For B2B and B2C

Price point is the most significant factor contributing to the differences between B2B and B2C churn rates. However, there are other variables throughout the consumer journey that subscription businesses can adjust to reduce churn rate:

• Better onboarding. Onboarding is the process of introducing your service or product to new customers. An organized and effective customer onboarding process will build trust and ensure customer loyalty from early on. 
• Long-term pricing. Annual subscriptions can help you retain customers longer and ensure recurring revenue.
• Showcase your “best” features. Every online tool has a core set of features that users use more than others. Figure out which features these are and ensure that customers are onboarded into seeing their value.
• Engagement. Customer engagement is an ongoing interaction between your business and its customers. Focus on improving user experience and resolving customer complaints and queries as soon as they arise.
• Offboarding. When your customers are leaving, you can make the most out of it by creating a proper customer offboarding process. Use tools like ChurnKey to get a more clear picture of why you are losing subscribers and find out which aspects of your products worked from them and which didn't. With ChurnKey, you can also offer customized deals at offboarding to minimize churn.

Minimize Your SaaS Company's Churn Rates with ChurnKey

You should never overlook your SaaS company's churn rate, as it determines the customer retention rate, your revenue ceiling, and, ultimately, limits your business growth.

Now that you understand the differences between B2B and B2C churn rates and the factors behind them, it's time to take action! 

Subscribe to ChurnKey to minimize your churn rates by gaining valuable insights, improving the offboarding experience, creating personalized offers, and more.