Table of contents
- Churn benchmarks for B2B companies
- Insights on SaaS churn (and advice for reducing it)
- A practical, step-by-step framework to reduce churn
- Drive predictable growth
In this edition
- đ Churn benchmarks for B2B companies
- đĄ Insights & research on SaaS churn
- đ A step-by-step framework to reduce churn at your company
đ Featured Benchmark Data (from Benchmark Groups)
Churn benchmarks for B2B companies
Median performance in July 2023:
- Revenue churn rate: 4.5%
- Churned customers: 30
- Customer retention rate: 95.4%
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đĄ Trends & Insights (from Reports & Surveys)
Insights on SaaS churn (and advice for reducing it)
Churn isnât unique to SaaS companies, but the impact it has on their business might be.
Unlike businesses that offer time-bound contracts, most SaaS products depend on recurring revenue and utilize subscription pricing.
Itâs often easy and cheap for customers to switch to a competing tool. Plus, thereâs no shortage of competitors, many of whom offer similar features or functionality.
And if your company follows a product-led growth model like we do at Databox, it makes it even harder to identify the causes of churn. Many customers sign up and leave without talking to you, making it incredibly hard to know why they registered in the first place, what their experience was like, and why they left.
The truth is, a SaaS companyâs churn is impacted by a multitude of factors:
Onboarding: how quickly can users get value out of your product?
Ease of use: how difficult is it to use and get value out of your product?
Features & functionality: do you offer the features users are looking for?
Customer support: if users need help or have questions, how quickly can they get answers?
Their pain: how well does your product solve the pain they feel? And is their pain temporary (a one-time use), or ongoing?
We recently surveyed SaaS companies to learn about their churn and retention challenges and summarized the data in our latest article.
Here are some of the insights:
- Over 67% of SaaS companies have dealt with a high churn rate
- The bulk of respondents (20%) attributed the cause of their churn to not monitoring customer usage or behavior
- Other causes of churn were 1) poor customer support, 2) competition, 3) pricing, 4) onboarding issues, or 5) inadequate features
- Most respondents (over 60%) said the best way to reduce churn was to provide better customer support
- Other popular methods to reduce churn included continuously enhancing usability, creating a customer success program, and providing comprehensive onboarding
- The majority of companies (55%~) monitor churn monthly, while others (25%~) monitor it quarterly. Very few companies measure churn weekly or annually.
đ Drive Predictable Performance (from Metrics & Chill)
A practical, step-by-step framework to reduce churn
When you look for advice on reducing churn, the answer is often, âIt dependsâ.
But Asia Orangio shared a step-by-step framework that just about any B2B company can apply to help them identify whatâs causing their churn, and how they might be able to address it.
Itâs the best, most practical framework Iâve ever seen on the matter, and Iâm excited to share it with you.
First, you need to distinguish between âqualifiedâ and âunqualifiedâ churn. Not all churn is created equal.
âQualified churnâ is churn thatâs happening among your target customer. âUnqualified churnâ is happening among users who arenât your target customer.
If youâre a product-led company, especially if you have a free plan, youâre bound to get users signing up for your product who you never intended to serve. You didnât build the product for them, and they arenât ever going to be your primary customers. So your focus should only be on addressing churn among your target customers: âqualified churnâ.
The next distinction to make is between âvoluntary churnâ (where users intended to cancel their accounts) and âinvoluntary churnâ (where users didnât intend to cancel).
Involuntary churn occurs when the customer misses something and the account lapses. Their card expires. Their team forgets to renew the contract. They didnât mean to cancel, it just happened due to some oversight.
Addressing unqualified churn is fairly straightforward. It might be as simple as receiving a Slack alert when a card fails to charge, or when the account is x days from expiration and hasnât been renewed.
Addressing voluntary churn is much harder. These are target customers who have decided they donât need you anymore, or that the solution you offer isnât worth the cost.
Asia says there are 3 categories of voluntary churn:
1) Perceived value = âI thought I was going to get x, but instead, I got y.â The user isnât getting the value they thought they would.
2) Realized value = âNow that Iâve gotten what I intended, itâs different than what I was expectingâ. Your product/service doesnât meet their needs or expectations.
3) Ongoing value = âThis worked well for a while, but I donât need, or value it anymore.â Their needs have changed over time, and they no longer get the value they used to.
The goal is to reduce causes of voluntary, qualified churn. And in order to do that, you need to determine which of these three youâre dealing with.
This means youâll need to talk to customers and gather some data. Set up a survey that users fill out when canceling their service, that asks why theyâre leaving.
Next, conduct exit interviews (usually in exchange for a gift card to increase response rate) where you ask four questions:
âWhat was the job you were hoping to hire the product/service for?â
âWhat led you to use this product?â
âWhat did you get out of it?â
âWhat went wrong?â
The answers from these questions will help you identify which type of churn youâre facing, and therefore, what steps you can take to mitigate it.
For exampleâŠ
If they hired your business to do something you donât do (perceived churn), you may have a messaging or targeting problem at the top of your funnel. Your ad or website messaging may be promising something the product doesnât deliver.
If they say your product/service âdidnât work like they wantedâ (realized churn), you might need to improve it. Or you might need to do a better job of describing how the product/service works, to set expectations before they sign up.
If they donât get ongoing value from it (ongoing churn), you might need to add new features to solve other problems they face. Or, you might need to adjust your pricing & packaging to account for this dropoff.
You can combine these qualitative insights with quantitative ones (like company size, revenue amount, job title, etc.) to get a better picture of what types of companies tend to churn the most, and when they tend to do it.
Unfortunately, dealing with churn is complicated, and thereâs no quick fix. But following this framework will help you identify whatâs causing the most churn among your target customers, and give you ideas to fix it.
If you want to hear Asia share the full framework, listen to the interview:
Drive predictable growth
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