Key definitions and industry benchmarks when it comes to churn, as well as the difference between B2B, B2C, and prosumer 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.
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.
There are two important types of churn: revenue churn and customer churn.
Customer churn rate can be further subdivided into voluntary and 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:
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 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.
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:
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:
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.
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:
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.