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Doctor, my churn levels seem elevated - should I be worried?

Oskari on February 17th, 2021

Summary

  • There is no universal answer to what is a normal churn level for SaaS companies
  • Generally however, monthly gross churn levels for SaaS companies tend to be between 2% and 8%
  • The variation can be explained to some extent by company-specific factors, such as customer focus and average contract value (ACV) or average revenue per customer (ARPC)
  • While these factors explain churn to some extent, the way a company manages churn will also have a significant impact on its churn metrics

What is a normal churn level for a SaaS company?

I am afraid there is no universal, all-fit-one answer to what is a normal churn rate for SaaS (software as a service) companies. Reported churn rates for B2B SaaS companies typically vary greatly, from 40% annually (4.2% monthly1) in Nathan Latka's analysis in 2020 to 7.05% monthly in a report by Recurly Research and again to 1.6% in a McKinsey report.

Within these averages, there is great variation. Generally speaking however, it is established that the following traits are associated with a higher churn rate:

Putting this together, SaaS companies catering to B2B enterprise-level clients should have the lowest churn rates, and SaaS companies providing low price point products to B2C clients the highest. Based on these data, "normal" monthly gross churn levels for the following four types of companies would be approximately:

If you have a lower revenue (higher) your "normal" churn rate is likely to be higher (lower) than these presented above.

What does the variation in churn level across companies imply?

I will repeat once more, not to disclaim any potential errors in this analysis, but to make a final point: there is no single truth to what a "normal" churn rate for your business is. The facts that there is no single "normal" churn level and that there is a lot of variation between companies imply that there are ways to manage it and that some succeed in it better than others.

How can I reduce my company's churn?

We at Kirnu believe that the most effective way to manage churn is to learn from user behaviour. Modern machine learning methods provide us with ways to accurately identify likely churners as well as find the optimal actions to take to prevent the churn. Kirnu gives you the tools for that with automated workflows, so you can sit back and let us do the heavy lifting.

1 Calculated as (100% - 40%)^1/12 - 1

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P.S. we expect to be beta test ready during Spring 2021 and are looking for test users. Drop us a line at hello@kirnu.io if you are interested in reducing churn in your SaaS application and getting exclusive access to Kirnu.