Which is the churn benchmark for SaaS?

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JASON LEMKIN

There isn’t one. But there are important rough bands, based on customer sizes:

  • VSB, Very Small Businesses, churn out 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.
  • 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.

But … if you blend these numbers, these segments — you’ll get a confusion 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 on the trends, more than the absolute.

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Published on May 18, 2016
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