Dear SaaStr: What Are The Churn Benchmarks for SaaS?
There isn’t one. But there are important rough bands, based on customer sizes:
- “Consumer SaaS” like mobile subscriptions to games often churns at a rate of 6%-7% a month. You really can’t have a sales model here, and need a very, very short and tight CAC.
- VSB, Very Small Businesses, churn out at high rates, 3–5% a month often. They get distracted, they go out of business, their credit cards get lost and the numbers don’t work anymore, etc.
- True SMBs (small but not tiny), if you are lucky, you will retain 95%-100% of their revenue each year, net of upsells and upgrades. It took HubSpot years to get to 100% NRR, and
- True Enterprise customers — Big Customers, Paying Real Money — you’ll usually see net negative churn by revenue, and thus, see expansion of 110–120%, or even more, as a cohort each year. They add seats, upgrade editions, add functionality, etc. You grow the account.
"You probably have to be even better to scale SMB SaaS than enterprise. Because the margin for error is so much lower. And you can just churn tomorrow." @HarryStebbings + @jasonlk
Much more here: https://t.co/gFBn5yYYk0 pic.twitter.com/WMBP32xaa1
— Jason ✨🇬🇧SaaStr LDN June 4-5✨ Lemkin (@jasonlk) May 27, 2024
And many of you will have customers in each segment. Here, be careful. If you blend these numbers, these segments — you’ll get a confusing aggregate. So you have to segment churn.
And churn can be calculated different ways. It can exclude trials, or include them. It can exclude credit-card churn in small accounts, or include it. It can exclude customers than come back in 90 days after cancelling. Or not. Etc. Etc.
So those are rough bands we see in different-sized customers. Use that as a yardstick, and segment it.
But then …
Focus on driving churn down, quarter-over-quarter, year-over-year, in each segment. Focus more on the trends, more than the absolute.
