Learn B2B SaaS Marketing

B2B SaaS Churn Rate Benchmarks

by 

Lauren O'Bryan

Last updated: September 3rd, 2024

In B2B SaaS, success isn’t just about acquiring new customers – it’s about keeping them. To effectively retain customers, you must know where you stand in the industry, which is where B2B SaaS churn rate benchmarks come in.

This guide breaks down B2B SaaS churn rate benchmarks, helping you understand your performance relative to competitors. We’ll also give you some practical tips to help you reduce customer loss, so let’s get started.

What is Churn Rate in B2B SaaS?

There are 4 main types of churn rate – customer churn, revenue churn, gross churn, and net churn.

• Customer churn: Measures the rate at which your business loses customers over a given period of time.
• Revenue churn: Measures the loss of revenue from existing customers during a given period. This includes revenue lost due to customers canceling their subscriptions (customer churn) and downgrades (customers moving to lower-priced plans).
• Gross churn: Measures the total revenue lost from churned customers and downgrades, without considering any new revenue gained within the same period.
• Net churn: Measures the revenue lost due to churn and downgrades, as well as the revenue gained from existing customers through upgrades or expansion.

Churn rate is calculated by dividing what is lost by what is gained over a specific period. For example, the number of customers lost divided by the number of customers gained that month, or the total lost revenue divided by the total revenue at the beginning of the period.

Some churn is always to be expected, but a high churn rate is a major red flag. If your business is not acquiring new customers fast enough to replace those leaving, business growth will stall and eventually fail. Of course, businesses rarely collapse fast, and the churn rate is considered an early warning sign to pay attention to. The churn rate can point out the revenue potential you can expect as well as how loyal your customer base is.

Factors that Influence Churn Rate

Several factors can influence a SaaS business’s churn rate:

• Business maturity: As is often the case, a mature company will have less churn and a more stable churn rate than a newer company.
• Type of product: Some products, by design or intended use, will have a higher user churn simply because they don’t need to be used long-term.
• Product complexity: Similarly, a product that is easy to use may see a higher churn rate because customers are more likely to switch to other similar products. At the same time, more complex products that take time to learn are more likely to keep users for longer because they see their time spent as an investment.

B2B SaaS Churn Rate Benchmarks

The B2B SaaS industry has experienced some ups and downs in the last few years following the pandemic, and the churn rate shows that.

In late 2021, the average monthly user churn rate in B2B SaaS peaked at 7.5%.

However, it has since decreased, and as of the first half of 2024, it stands at approximately 3.5%.

While the ultimate goal is to achieve negative churn, an annual churn rate of less than 5% is considered the benchmark for sustainable growth.

Of course, there’s some variation between SMBs and enterprise-level SaaS companies.

• SMBs are likely to have an annual customer churn rate of 3-5%.
• Enterprise SaaS will have longer relationships and a churn rate of 1-2%.

Common Reasons for a High Churn Rate

If you’ve established that your churn rate is unacceptable, you’ll want to start exploring the possible causes. The most common reasons for a high churn rate include:

• A poor customer experience, with a general lack of support or features not meeting expectations.
• Perception of the product as poor value for money.
• A lack of integration options that stifle functionality with the user’s existing systems.
• Competition – users finding better alternatives elsewhere.

To identify the specific reasons for a high churn rate, you should turn to the data. Analyze usage data and customer feedback to detect trends in behavior or similar themes in comments. Many companies use customer feedback forms throughout customer engagement, including when a customer cancels their subscription. In-depth interviews are another option, providing space for long-form answers that give greater insights into customer complaints.

Data analysis can also help identify blockages and issues. Look for patterns such as low engagement, infrequent logins, or underutilized features that may indicate dissatisfaction or lack of value. All of this data will come in handy when developing marketing funnel forecasts.

Marketing Funnel Forecasting

Churn rate is an important metric to include in your funnel forecasts. Developing accurate marketing forecasts makes it easier to set achievable goals and allocate budget accordingly. Moreover, developing these forecasts allows you to attribute marketing efforts to financial outcomes, strengthening your case for additional budget.

Our method of developing marketing funnel forecasts includes many metrics related to sales, marketing, spending, and revenue. This data comes together to produce accurate forecasts you can rely on, so check out our article to learn more.

How Churn Rate Affects The Marketing Funnel

Churn rate impacts each stage of the B2B SaaS marketing funnel, either directly or indirectly.

In the initial awareness and interest stage, a high churn rate can significantly damage brand reputation. Poor feedback from departing customers can lead to potential customers being reluctant to engage with your product.

At the consideration stage, a high churn rate becomes a major concern for prospective customers. This may lead them to actively compare churn rates with competitors, potentially viewing your product as too risky or unreliable.

When a prospect gets closer to the point of purchase, a high churn rate is still seen as a red flag. Even if they do convert, they’re likely to keep alternative options in mind, ready to switch to a competitor at the first sign of dissatisfaction.

Strategies to Reduce Churn Rate

Now that it’s clear why churn rate is important and how you can make use of this data, it’s time to discuss how to reduce a high churn rate.

Improving Onboarding

Improving customer onboarding and education is an effective strategy for easing customers into using the product and making this early stage less overwhelming. Consider simplifying the onboarding process, providing one-on-one support, or improving onboarding documentation.

Enhance Customer Success

Beyond the onboarding stage, customers can become disengaged if they perceive a lack of value or struggle to use the product effectively. You can enhance your customers’ experience by increasing the level of support, building a knowledge hub, or adding a training center.

Continuous Monitoring and Evaluation

By regularly collecting feedback and acting on these insights, you can address small issues before they escalate and contribute to a high churn rate. Implementing proactive strategies to keep customers happy is the best solution to prevent the churn rate from spiraling.

These strategies all focus on customer satisfaction. However, it’s important to note that some customers provide a greater dollar value to your business than others, so identifying, segmenting, and prioritizing these customers is well worth the effort.

Identifying Your Best Customers

Your best customers are not necessarily those with the highest LTV or the ones who convert the fastest. Identifying your best customers will require a little digging, and by pinpointing the correct profile, you’ll be able to avoid low engagement rates, low conversion rates, and high customer churn.

After going through our recommended process for identifying the best customers, you’ll be able to correctly update your buyer personas. With accurate buyer personas, you can refine your content and finetune ad targeting across all channels to ensure you’re nurturing the right audience from the beginning.

Wrapping Up

It’s plain to see that churn rate provides much more than just a warning sign of impending problems and can be harnessed to improve customer satisfaction and your revenue baseline. Reducing a high churn rate requires a combination of tactics, including going back to basics to finetune your buyer personas. And when you know you’re investing in the right audience, you can confidently scale your SaaS business.

Before you begin scaling, take our SaaS scalability score self-assessment and find out how your business stacks up against the competition. This assessment looks at how well you attract, engage, and convert customers so you can establish a sustainable growth strategy.