* This article is part of a White Paper called “SaaS: Secrets of Churn Revealed.”
The total number of months that a customer stays with the business before cancellation can be determined using churn.
SaaS customers often repurchase services every month, making it easy to calculate churn rates. Others purchase services a few times a year and so the churn has to be calculated annually.
Churn Rates Vary Greatly
Churn rates vary greatly depending on the type of SaaS business; at startups, the total churn is small and the customer base usually grows. When it comes to established companies, if no credible innovations and business adaptations are undertaken by the business, the growing customer base could mean an increase in churn. The higher a company’s churn rates, the longer it takes to break even and turn a profit.
The Type and Industry of the SaaS Product Affect Churn
The type of SaaS you offer – and the industry of the SaaS product – have a direct effect on churn. For example, an invoicing application is something crucial to business. Once implemented into a company’s system, there will most likely be a low churn rate.
On the other hand, a SaaS entertainment application is more dispensable, so it attracts a higher churn. When budgets become too tight, this will be the first type of service to be cancelled.
High Churn Should Change Priorities
A high churn, usually double digits, is a wakeup call for businesses; the product they are offering is not meeting the customer’s expectations. At this point, they should no longer focus on marketing or growing the product.
The priority is diagnosing the problem and fixing it- in order to avoid losing any more customers. SaaS providers can easily pin point the problem via feedback; by talking to their customers and asking for suggestions, they can improve the quality of their product.
For those customers who have cancelled; analyze why the customers have left or opted to use a competitor’s product. For potential customers; approach via surveys, focus groups or test studies, and ask for their opinion on the product.
Getting Churn Rate Under Control
Getting the churn rate under control is critical in sustaining a SaaS business. Thrive to get customer feedback and maintain a good one-on-one relationship. Take the proper measures to retain customers and increase the client base; offer low competitive rates while offering quality services.
SaaS MRR churn is an extension of SaaS customer churn rate. As the name suggests, it focuses on the erosion of SaaS ‘monthly recurrent revenue’ lost. This loss is the result of customers not renewing their contracts with a SaaS vendor.
Churn is always expected to happen no matter how good a SaaS product is. Most experts consider 3% or lower to be an acceptable churn value. Business owners should not worry themselves too much as long as this rate is maintained.
SaaS is the most popular software option available today. The successful operation of a SaaS business is dependent on a number of factors, one of the most important factors being churn rate.
If you keep your churn under control, your business will be well on its way to a profitable future.
This article is part of a White Paper called “SaaS: Secrets of Churn Revealed.”
Claim your free copy by filling the form below.
The Whitepaper covers a range of topics, including:
- Churn More in Depth
- How to Handle High Churn Rates