In the wake of global inflation, the SaaS business sector has been undergoing an influx of new competition and a constant rise in customer churn.
Switching to competitors’ products/services is also rising under the impact of digitization, especially using price comparisons. In this uncertain economic climate, their utmost priority is to keep customers from churning.
Winning new customers is more costly and retaining long-term customers with long-term subscription plans can be much more valuable. Fortunately, today’s companies have b2b SaaS churn rate benchmarks such as robust customer retention strategies and acquiring a new tool to help them keep old users and acquire new ones: Churnfree.
Churnfree uses automated algorithm-driven methods to drill down data of individual customers based on their behavior patterns. Hence, businesses can control their customer base more strongly and control churn. Churnfree helps you evaluate marketing effectiveness, improve your bottom line, and double down on your customer retention strategies.
Let’s dive into everything you need about b2b SaaS churn rate benchmarks. As churn experts at Churnfree—we enable you to understand why your users cancel their subscriptions and assist you in retaining them with personalized onboarding experiences—Collect a pack of tips, b2b benchmarks, and guidance to improve your churn rates.
SaaS Churn Rate: Definition & how to calculate it
Knowing the deep-down definition of churn rate and how it can become subtly uncertain to affect your business strategies is imperative.
First, let’s explain what we mean by “churn rate.”
The churn rate estimates the number of users who cancel their subscriptions within a specific period. It is a beneficial practice to calculate revenue lost from churned users.
SaaS churn rates are critical for a business’s long-term undertakings and overall performance.
Calculating SaaS Churn Rate
SaaS churn rate focuses on the number of users that leave your services monthly or annually. To measure the SaaS churn rate, you can divide the total number of churned users via the total number of users:
b2b SaaS churn rate benchmarks
For example, if your business has 1000 customers and 80 ended their subscriptions last month, your customer churn rate is 8%. The SaaS churn rate is also understood as “logo churn.”
Net SaaS Churn Rate
To get more accurate measurements, there’s the net SaaS churn rate, which evaluates the number of new users your business gained over a specific period.
To measure it, you need to divide the total number of left users by the number of new users gained over a period via the total number of users.
b2b SaaS churn rate benchmarks
For example, if your company has 1000 customers, 80 of them canceled their subscription last month, while your business gained 2 new users, your net SaaS churn rate would be 6%.
Nevertheless, customer retention is a tremendous metric to evaluate your customer base and product experience. Still, it does not offer real insights into the revenue affected by the churned users—it’s usually connected with the revenue churn rate. The real insight is gained by the tool that measures your Net SaaS churn rate and helps you define your users’ behavior patterns.
Revenue Churn Rate
The revenue SaaS churn rate calculates the ratio of lost revenue due to some reasons, such as downgrades, cancellations, payment failures, and other bottlenecks. To measure it, you can divide the total churned revenue over a specific period with the total revenue at the beginning.
b2b SaaS churn rate benchmarks
For instance, if your total revenue is $2,000 and your churned revenue is $300, your revenue churn rate will be 15%. The revenue churn rate helps set different pricing tiers for subscription pricing plans, which do not fall under the category of SaaS churn rate.
The net revenue churn measures the revenue obtained from expansion, such as upsells, add-ons, or tier upgrades. To measure it, you can divide the total churned revenue minus the expansion revenue by the total revenue at the beginning of the period. The very reason to calculate the revenue churn rate is to gain more in-depth insights into the actual revenue lost and gained.
For instance, if your business gained $2000 and your churned revenue is $300, but you also gained an additional $80 from expansion, and the net revenue churn is 7%.
16 Customer retention strategies to reduce your business high churn rate.
Monthly Recurring Revenue/ Subscription Revenue
SaaS businesses usually operate on a monthly income basis. Therefore, another important metric to calculate when and why your customers decide to leave your services—is the Monthly Recurring Revenue (MRR) Churn. To measure it, you can divide the total churned MRR minus the expanded MRR with the total MRR at the beginning of the month.
b2b SaaS churn rate benchmarks
Likewise, you can know your Annual Recurring Revenue (ARR) churn if your business runs annually. Similarly, you can divide the total churned revenue minus the expanded revenue with the total ARR at the beginning of the year.
b2b SaaS churn rate benchmarks
Similarly, you can estimate retention and measure Gross retention, Net retention, or Logo retention. Customer retention lets you track how successfully you can retain existing users happy and gain more revenue.
B2B SaaS Churn Rate Benchmarks & Challenges
In the uncertain economic climate, knowing the natural causes behind churn should be the ultimate motive of every business. There are several b2b SaaS churn rate benchmarks and challenges every business face, and let’s dive into why they occur and what the solutions are.
Churn happens when businesses fail to know users’ behavior patterns.
Personalization is critical for your users to track their preferences, attitudes, and willingness to pay. Amazon, for example, can rely on extensive storage of past purchase decisions to calculate what its user is prepared to pay for specific products. Using advanced analytics, it examines the motives of past purchases—not only a user’s buying history, age, gender, and location but also monetary factors such as purchase value and monthly or yearly shopping expenditure—and then these metrics are used to measure the possibility of a new purchases users are willing to make.
This way, you can decide on an accurate price plan, and your users don’t feel an over-pricing factor and do not cancel subscription plans to join your competitors’ service for lower prices.
What do your users actually want?
Personalization is essential because businesses profit from it, and users expect it. The study reveals that 74% of users find mass marketing is frustrating, as many businesses have observed a steep decline in the significance of newsletters, birthday mailings, and matching campaigns.
The users’ expectations grow as they are suggested to more personalized advertising through digital media and other advertising channels.
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