Churn Rate is one of the most important metrics for a Subscription based SaaS. Churn is the term for a customer not renewing their subscription and ceasing to be a customer. The Churn Rate is the percentage of customers you lose over a year.
Ie – if you had 100 customers paying for a subscription at the start of the year, and 95 of them renewed their subscription, your churn rate would be 5%.
Because the rate is based on existing subscribers, it can only be between 0% (everyone renewed) and 100% (no one renewed). Churn is a key piece of Net Dollar Retention, another important metric for SaaS developers to understand.
Churn Rate is especially important and simple for developers at SaaS companies with subscription models. Anyone who doesn’t renew their subscription has churned.
What is a good churn rate?
Churn rates differ based on your market and customer type. For example, small business churns at much higher rates than enterprise. See this article for an depth discussion.
The 2 most important numbers:
- The average churn rate is 13% per year
- Sustainable Growth requires a churn rate below 8%/year
The higher your churn rate, the harder it is to grow, or even tread water.
How can developers reduce churn?
Customers churn for all kinds of reasons that developers can’t impact. Smaller customers go out of business; enterprise customers have internal politics.
There are two places where developers have the greatest impact:
- The First 90 Days
- Bugs and Performance Over Time
The First 90 Days
The first 90 days are your chance to provide value to your customers. If customers don’t get value in the first 90 days they lose interest and try something else.
This isn’t the time to push for long term value, it is critical that your UI guide customers to small, quick wins.
For developers, that means you need to work on two experiences:
- Importing data. The process needs to be easy and fast.
- Reports. Customers need to see the value.
Bugs and Performance Over Time
If you make it past the first 90 days, congratulations, your customer is likely to lock in to an annual subscription. The 30 days before renewal, however, are not the time when a customer decides to churn.
Long term customers churn because they aren’t getting value anymore, the platform is slow, or they hit bugs. Circumstances change, when customers are no longer getting value from your service, there’s nothing to do but wish them luck as you wave goodbye.
Is your platform fast and responsive? Does it get slower over time? These are developer concerns!
Do your customers hit bugs? That’s a developer concern! Each bug increases the odds that a customer churns instead of renewing.
Conclusion
For subscription based SaaS, Churn is a simple top level metric. Higher churn means slower growth or even negative growth.
The two key areas are the first 90 days, and long term performance and bugs.
Make it easy to get started and see value; keep the customer experience from degrading over time.
Last, remember that a lot of churn has nothing to do with your SaaS or your work as a developer!
