Dear SaaStr: How Do We Reduce Churn?
Churn is one of the most critical metrics in SaaS. Maybe the most critical in the end. With too much churn … in the end, it doesn’t compound.
It’s the silent killer of growth—if your churn is too high, it’s like trying to fill a leaky bucket. You can’t scale effectively if you’re constantly losing customers faster than you’re acquiring or expanding them.
There are two main types of churn to track:
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Customer Churn: This is the percentage of customers you lose in a given period. It’s a good indicator of how well you’re retaining logos, but it doesn’t tell the full story because not all customers are equal in value.
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Revenue Churn: This is the percentage of revenue lost due to churned customers. It’s more telling because losing a big customer can have a much larger impact than losing several small ones. Ideally, you want negative revenue churn, where expansion revenue from existing customers outweighs the revenue lost from churned customers.
Why Churn Happens
Churn can happen for a variety of reasons:
- Product Fit Issues: The customer didn’t get enough value or ROI from your product.
- Customer Oversold. A variant of the first point. Some of this will happen in a sales-driven model, but ideally only a little bit.
- Poor Onboarding: If customers don’t see value quickly, they’re more likely to leave. 90%+ of start-ups don’t do enough here. Do more here. I’m going to say this again and again … for a reason.
- Lack of Engagement: If customers aren’t actively using your product, they’re at risk.
- External Factors: Budget cuts, company downsizing, or acquisitions can lead to churn, especially in SMBs, where natural churn tends to be higher.
- Materially Better Competition: In some ways, a variant of Product Fit. Someone else materially pulls ahead here.
How to Reduce Churn
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Invest in Onboarding. Really, Really Invest: The first 30-90 days are critical. Make sure customers see value fast. If they don’t hit their “aha moment” early, they’re more likely to churn. I see way too many start-ups with 10%-20% of their new customers not onboarding in the first 30 days. This isn’t OK in the enterprise, but it’s a tragedy in SMB. Try to get SMBs onboarded as close to instantly as possible.
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Make Time-to-Value a Top Company Wide Metric. Relentlessly drive down how quickly customers launch and see value. Too few start-ups track this as a core KPI.
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Proactive Customer Success: Don’t wait for customers to complain. Monitor usage data and reach out to customers who are disengaged or struggling. However you do it, have a real dashboard you review at least weekly on the health of every single customer. And reach out to more of them.
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Close the Feedback Loop: If customers churn because of missing features or poor service, fix those issues. Lost customers don’t complain—they’re already gone. Complaints are opportunities to save accounts.
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Build Relationships Across the Org, Especially in Bigger Accounts: Don’t rely on a single champion. If they leave, your account is at risk. Build multiple relationships within the customer’s organization to reduce dependency on one person.
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Segment Churn: Not all churn is equal. Separate voluntary churn (customers who leave by choice) from involuntary churn (e.g., failed payments). And segment by customer size, at least S, M and L. Each requires a different strategy.
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Focus on Logo Retention: Even if a customer downgrades, keeping the logo is critical. Downgrades can turn into upgrades later if you maintain the relationship.
Churn is inevitable, but the goal is to drive it down every quarter. If you can get to 120%+ net revenue retention in the enterprise, 110% from mid-market, and 100%+ from SMBs … you’re in a great place. That means your expansion revenue is more than offsetting any churn, and you’re growing even without adding new customers.
