What's a Normal Churn Rate in SaaS?

As a SaaS founder, you face churn every day. It stunts your business’ growth, decides your revenue ceiling, and can determine your state of mind.

Whatever your hopes and dreams are for your business, customers are always going to be canceling. But the good news is that combating churn is largely about mindset. It’s a problem that can be solved, a scenario that can be predicted.

What Determines a SaaS Company's Churn Rate?

The most important factor for what defines a “normal” churn rate is whether or not your SaaS business sells to businesses, consumers, or an audience in between.

Churn Rates for B2B SaaS Companies

B2B (business-to-business) SaaS companies typically have lower churn compared to their B2C (business-to-consumer) counterparts.

Software products geared towards businesses, on average, have a higher price point. Businesses also are more deliberate about purchases compared to consumers and, thanks to accounting departments, tend to pay their bills on time. As a result, they keep the software products that they purchase around longer. They are also much more likely to purchase contracts on an annual basis—which, as you guessed—comes with high renewal rates.

Thanks to Profitwell’s Benchmark dataset, which provides real-time benchmarks “powered by the largest subscription metrics data-set in the universe,” we can get some insight into B2B churn rates.

Based on this data, B2B SaaS companies usually hold a 4% or 5% churn rate while topping out in April around 6% (thanks to tax season).

Churn Rates for B2C SaaS Companies

B2C companies tend to have a higher churn rate compared to their B2B counterparts, primarily due to lower price points and higher volume. Consumers are also more likely to make impulsive purchases. They don’t have to get approval from a boss before pulling out the credit card and subscribing.

Harkening back to the Profitwell dataset, we see that B2C companies usually hold a 7% churn rate that tops out around 8% in April (again, hello tax season).

Churn Rates for Prosumer Companies

Many SaaS companies don’t fall into the typical B2C or B2B buckets. The gray area in between the two groups can many times be times as “Prosumer.” Prosumers are individuals who make purchases on tools and gear with the goal of becoming a professional in the future. Podcasters, video creators, photographers, influencers, and bloggers are all great examples of prosumers.

As expected, Prosumers have a blend of attributes between B2B- and B2C-focused companies and generally have a churn rate between the two.

What Is The Biggest Factor That Determines SaaS Churn Rate?

By far, pricing is the most important factor when determining a SaaS’s churn rate. It’s the backbone of the difference between B2B and B2C SaaS companies. B2B companies can price their product at a higher price point, which results in lower churn.

We see in Profitwell’s data that SaaS companies with price points under $100 see a churn rate between 5%-8%. Companies with monthly rates over $100 see a churn rate between 4%-6%.

The Difference Between Voluntary and Delinquent Churn Rate and How It Affects Churns

All this discussion about churn rates has been about voluntary churn (we covered the four types of churn here). Voluntary churn simply means the customer churned according to their own volition.

But the other type of churn to be aware of is delinquent churn. Delinquent churn is when a user churned due to a failed payment method or lack of action to re-subscribe for another billing cycle. This is most commonly seen with failed payments due to expired credit cards.

SaaS product price points also have a massive impact on delinquent churn. As we see in the graph from Profitwell below, products with a price point of under $100 per month have twice the delinquent churn rate than products priced over $100 per month.

How to Determine How Churn Will Affect Your SaaS Revenue

You could have amazing customer acquisition channels, state-of-the-art onboarding, and the best sales team around, but if you aren't able to retain your subscribers, none of that matters. If users cancel at a high rate, your company's growth is going to be severely stunted. Permanently.

How to Reduce SaaS Churn

There are a lot of ways to work on reducing a high SaaS churn rate. It’s important to think about the customer journey and all of the points where they can get tripped up and allow their accounts to lapse. Below are a few key areas to focus on when beginning to work on lower your churn rate:

• Pricing & positioning
• Offering annual contracts
• Onboarding
• Segmentation & engagement
• Offboarding

As SaaS operators for the past five years (three of our businesses generate over $1M in ARR), we’ve found that improving our offboarding experience has provided the clearest ROI for our churn-fighting efforts. For example, we found that a huge portion of our SaaS cancellations were related to a customer's budget or current needs and had nothing to do with us. As we developed a clearer picture of which customers were leaving and why they were doing so, we embarked on a quest to build tools to protect as much revenue as possible. After many months of testing and optimizing various approaches, we were able to cut churn in half.

Now you can too with Churnkey.

Churnkey takes care of your offboarding flow with one line of code and gives your product stakeholders a simple dashboard for reporting and configuration. Implementing Churnkey frees up your development resources and provides an industrial-grade offboarding experience that is maintained and improved for you.