The SaaS industry is dynamic and competitive, often making it difficult to judge what constitutes a “good” churn rate. That’s where benchmarks come in handy.
Measuring your churn rates against industry benchmarks provides guidance to Customer Success teams at both new and established businesses. At the very least, benchmarking can give CS teams a sense of where they should be aiming. (Hint: lower is better!)
To accurately plot where your churn is, we’ve assembled the latest data on churn rates for B2B SaaS companies in 2023 for you below. How does your company measure up?
Churn Rate Benchmarks for B2B SaaS Companies, Updated Q4 2023
If you haven’t calculated your own churn rate yet, try Vitally’s churn rate calculator to get rid of the guesswork.
What’s the Current State of Churn in 2023?
SaaS churn rates have noticeably increased since the early pandemic era. According to a 2022 KBCM study, the median annual churn rate for SaaS companies in 2020 was approximately 13%, or about 1.1%/month.
But those numbers have since shifted significantly. In many cases, both small and large SaaS companies were seeing monthly churn rates around 4.4% as of September 2023. To put it plainly, that’s like replacing half your customer base each year!
While the current churn rate for SaaS companies is alarmingly high, it’s actually lower than it was at the start of 2021, when average monthly churn rates were hovering around 4.8%.
Post-COVID spending reductions, along with high interest rates, have driven many companies to rethink their expenses. As a result, 2023 has seen particularly high churn rates for SaaS companies across the board.
According to Paddle’s research, B2B SaaS churn rates have been leveling out, but September 2023 churn was still approximately 9-10% higher than a year prior.
While retention and churn have stabilized somewhat throughout the summer of 2023, they continue to remain both stubbornly high and a drain on MRR.
Paddle.com predicts things may get worse before the end of 2023 as well: "Due to slower forecast SaaS growth in 2024, we expect November and December churn to be at least 10-15% higher than the levels seen in September."
Due to slower forecast SaaS growth in 2024, we expect November and December churn to be at least 10-15% higher than the levels seen in September.
As we see it, an annual churn rate of about 5% or less will be needed to maintain sustainable growth. This figure seems to be a generally agreed upon benchmark, according to reports from Forbes and Gong.
As Ryan Law of CoBloom says, “Absolute churn rates aren't as important as changes in churn rates…Though it's hard to give a precise benchmark, the six studies I've analyzed suggest the same thing: a 5% churn rate is pretty common, and as evidenced by the likes of Buffer, Baremetrics, and Convertkit, not a clear-cut barrier to growth.”
Monthly Churn Rate Benchmarks for 2023
Let’s zoom in a bit and look at some recent data on monthly churn. For small to medium-sized SaaS businesses (SMBs), which typically bill monthly, you’ll see a churn rate between 3 and 7%. Businesses that purchase software from SMBs tend to do so in a lower price range, which leads to a lower switching cost based on the subscription model.
Enterprise markets are a bit more predictable and stable, so an ideal benchmark for monthly churn at the enterprise level should be closer to 1%. Larger companies have more money to spend, but also higher costs associated with switching providers. This leads to less frequent churn.
Churn expert Scott Huruff at Churnkey agrees: “Larger companies have lower churn rates since they’ve had time in the market to establish their clientele. In addition, their clients are usually extended contracts that can’t churn, and what’s more, those clients don’t have the same budget concerns as medium or small ones.”
Primer: What Is Churn Rate?
Churn is one of the primary performance metrics for Customer Success teams at SaaS businesses. Despite being simple to calculate, perhaps no other metric is the subject of so much confusion. Churn rate can apply to revenue — MRR, QRR, or ARR, and Net Dollar Retention — but also Average Revenue Per User, CLV, and CAC.
For most SaaS CS teams, we can simplify churn as the measure of customers or subscribers that have left your service over a given amount of time.
Fact: Only 1 in 26 unhappy customers complain about a bad experience. The rest simply churn out at the end of their subscription.
What Drives Higher Churn?
For SaaS companies, that can include:
- Poor customer experience
- Unmet needs and lack of support (account or technical)
- Pricing and perceived value for money
- Dissatisfaction with the product
- Never fully integrating your product with their tech stack
- A better competitive offer
Why Should I Care About Churn?
Plain and simple, churn rate is a snapshot of not only your company’s revenue potential but your brand loyalty. It provides a clear signal that there may be an issue you need to resolve or a service you need to improve. People leave for a reason, and you’ll find it more difficult to retain customers and attract new ones without identifying and solving underlying issues.
Churn rate, as a metric, is an early warning alarm that something is wrong.
The Problem With Comparing Your Churn Rate to Other Businesses' Churn Benchmarks
Before setting goals and building strategy around SaaS churn benchmarks, you should first understand the fundamental challenges in comparing churn across different businesses. To name a few:
- Business Maturity: An established company with a large user base and strong reputation often has lower churn than a less established company and may have a less volatile churn rate over time
- Product, pricing, and customer lifecycle: Some businesses are not optimized for long-term use, such as a job search platform and, accordingly, experience higher churn
- Business Strategy: Rapid growth business with large target market sometimes tend to is likely to attract new subscribers with discounts and offers, fully expecting often have to choose between driving net new users as quickly as possible vs. retention
- Product Elasticity: With some products, it is much easier to regularly switch suppliers in search of the best deal. In sectors where it is harder to change vendors, such as complex technology infrastructure and business-critical systems, businesses often have lower churn.
- Macro influence: Some SaaS businesses are more subject to macroeconomic pressures, new government policies and regulatory forces. For example, a change in law may require a gambling or gaming platform to close underage accounts; or prohibit trade in cryptocurrencies. In such cases, churn will be temporarily high.
Get Your SaaS Company’s Churn Rate Back Under Control
Churn is inevitable. No matter how great your CS team is, or how high-quality the product or service you’re offering is, customers will leave.
But there are plenty of tactics to try and levers to pull to stop churn before it starts. Lean on technology to alert you when valuable customers are in danger of churning. Automate certain communications and processes in your CS strategy to make each CSM as effective as possible. And build stronger, longer-lasting relationships within each account.
We’d love to help you do this. Vitally unifies customer data from across your tech stack so you can proactively identify trends and leverage insights for a world-class customer experience. Think customer data, product analytics, support tickets, emails, NPS, and revenue data — all in one platform, all in real-time.
Think now’s a good time to look into churn reduction and better customer health monitoring? Book your personalized demo of Vitally today.