What is Churn Rate for SaaS companies

The churn rate in the SaaS industry is one of the key metrics for companies that provide subscription-based services with regular payments. By calculating it, you can understand how many users refuse your product for a definite reason and develop a strategy for retaining them. Today, we will explain what the SaaS churn rate is, how it is measured, what it should be, and how to optimize this indicator.

SaaS Churn Rate Definition

The churn rate for SaaS is the relative number of customers who canceled their subscription to a company product during the reporting period. It does not take into account new subscribers. Therefore, calculating it will help you understand how quickly you lose loyal customers who have been using your service for a while.

By comparing the churn rate in SaaS with the rate of new subscribers, you can draw a conclusion about the overall dynamics of the customer base. If the first figure is higher, you are gradually losing subscribers and money. If the latter is higher, your company retains customers, allowing it to expand and improve financial results gradually.

Why is Churn Rate for SaaS Companies Important

According to CallMiner, companies in the United States lose $168 billion annually due to customer churn. However, they could avoid $35.3 billion in losses if they chose the right marketing strategy aimed at customer retention. The basis of such strategies should be high-quality analytics, which involves constant monitoring of the SaaS churn rates. 

This indicator can describe the following categories:

• The level of customer satisfaction. According to Customer Experience Magazine, only 1 out of 26 customers complain - the rest just leave. If your metric increases significantly compared to the SaaS churn rate benchmark, your subscribers are definitely dissatisfied with the quality of service.
• Loyalty. A rapid churn rate, even against the background of overall growth in the customer base, indicates that your company cannot retain subscribers. This is dangerous because you deal with a limited target audience, which your competitors also work with.
• Marketing efficiency. If you lose subscribers quickly, they may not find the expected features in your service. It is worth revising your advertising campaigns and clarifying the information so as not to mislead future users.

How to Calculate Churn Rate for SaaS Companies

The formula for calculating the churn rate in SaaS is as follows:

Most often, marketers work with monthly or annual subscriber churn rates. But you can also choose a different duration of the reporting period - a week or even a day. It all depends on your goals. For example, if your company operates normally, comparing month-to-month is appropriate. If competitors' black PR has hit your service, the situation will change more quickly.

SaaS churn rate calculation can also be based on its impact on the company revenue. Loyal customers often use premium subscriptions, which makes them more valuable. In this case, the formula will look like this:

What is a Good Churn Rate for a SaaS Company

According to experts from Bessemer Venture Partners, a good churn rate for SaaS is 5-10% annually. But this is more of a benchmark to strive for. ChartMogul statistics show that the actual average churn rate for SaaS companies in 2023 was 4.1% per month. In annual terms, this is almost 40%. 

It is also worth considering that the level of customer churn is affected by many factors, from current market dynamics to the mood of the target audience. That's why it's always better to focus on the average figures for your segment. You can find them in specialized marketing research or reports from consulting companies.

How to Reduce SaaS Churn Rate

The main reason for churn is poor customer experience (CX). Users may cancel their subscriptions because they do not like the functionality and interface of the service, pricing policy, quality of service, or even the reputation of the business. Here is how you can optimize CX.

1. Improve customer support

Zendesk surveys show that a negative experience with company representatives spoils the mood of 75% of customers. After 2-3 such episodes, 73% decide to change service providers. To reduce the churn rate for SaaS, you should take the following measures:

• Make your support accessible. For example, add a button to the website that will be available on every page. And even better — add a Claspo widget listing all available communication channels. Unlike a button, it won't get lost among other page content.

Use this template

• Reduce the response time to a request. A chatbot can instantly answer simple questions. Moreover, it will save time until a specialist joins the dialog.
• Personalize support. According to Salesforce, 66% of customers have a negative perception of standardized service. To make your subscribers feel like people, not numbers in the company's financial statements, you should connect a high-quality CRM, where a specialist can see the entire history of interaction with the user.

2. Communicate regularly with customers

If you don't know why users cancel their subscriptions, ask them a direct question. To prevent people from ignoring your questions, offer them a small reward — a discount coupon, a level upgrade in a loyalty program, bonuses, etc. One of the best tools for collecting responses is widgets. Claspo has ready-made survey widget templates you can easily customize to suit your needs. Thanks to Claspo's integrations with many ESPs and CRMs, all responses are quickly transferred to the selected data hub for further communication with each customer.

Use this template

To find out why your churn rate is higher than the average SaaS churn rate, you can use the following tools:

• Net Promoter Score (NPS) - an estimate of the likelihood that a user will recommend your product to a friend;
• Customer Satisfaction Score (CSAT) - an assessment of customer satisfaction on a scale from 1 to 10;
• CES - an assessment of the difficulty of using the product or its specific modules;
• structured survey forms;
• open-ended questions that allow users to express their opinions.

3. Conduct post analysis

Turn a negative into a positive conduct post-analysis. If a customer has already left, make conclusions from this episode to improve your service. The easiest way to get information is to email the user with a survey or an offer to tell you about their experience. Dissatisfied customers are eager to share their emotions, so it will be easy enough for you to get feedback. But don't insist on returning a user — it will only irritate them and reinforce the negative. Alternative ways to get information are:

• Study the last session if the functionality of your product provides this option. Pay attention to repeated actions, errors, and bugs that made the customer unsubscribe.
• Exit survey. Find out a user's opinion while their emotions are still burning. Ask them to answer a few questions after they cancel their subscription, but don't insist on them returning.
• Analyze recent activity. See how often a customer used your service, the duration of the sessions, and what features were used. A gradual decline may mean a general loss of interest in this product, but an abrupt stop usually indicates a switch to a competitor.

4. Offer rewards

The best ways to retain users are quite conservative. According to Rain POS surveys, 79% of customers would like regular price discounts from their service provider, 71% would like cashback, and another 70% would like coupons. These are quite simple and popular tools, so adding them to your marketing policy won't be difficult. Claspo will help you attract the maximum attention of website visitors to them. Our library boasts many ready-made templates for promoting discounts, promo codes, and other special offers. Simply choose a widget template and adapt it to your needs and brand style in our simple visual editor.

To get back to the typical churn rate for the SaaS industry, you can also offer:

• personalized gifts for holidays and special occasions;
• invitations to test new product features;
• temporary or permanent improvement of subscription terms.

Decrease Your SaaS Churn Rate with Claspo

Claspo is a simple and effective tool that allows you to create widgets with minimal design and programming skills. By adding them to your site, you can encourage customers with discounts and gifts, conduct surveys, direct your followers to the company's official social media community, and collect their contact information — the only limit is your imagination. But whatever your goal, Claspo will help you achieve it. TMetric simplified new app users' onboarding with Claspo, and Devart increased their product downloads by 48% with our great widgets. 

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