Mistakes To Avoid When Calculating SaaS Churn


Churn is a big deal in the world of SaaS.  Revenue is dependent on continued subscription to your software services and if you are not keeping a close eye on your churn rate, you may risk going out of business. With that being said, many SaaS companies are not viewing churn the right way. The steps you are taking to determine your churn rate should be enabling you to take useful steps in trying to reduce it.

Below are five common mistakes that are made when it comes to calculating SaaS churn, and what you can do to avoid them.

Only looking at one type of SaaS churn

If your company only offers one service at a set price, keeping track of your customer churn is pretty cut and dry. But most SaaS providers do not have this type of business model. Typically, they will have varying subscription levels and potentially multiple products which in turn would lead to different revenues from one customer to another. Therefore, both customer and revenue churn are important to track.

Customer churn lets you know how many customers you are losing. These numbers are very beneficial in giving you an idea of areas of improvement for both customer support and customer service.  They also give you an idea as to how well you’re meeting the needs of your niche. Revenue churn on the other hand gives you insight into the rate at which recurring monthly revenue is lost with respect to churned customers and lowered subscription levels. For example, high customer churn with low revenue churn would mean your higher priced SaaS subscriptions are doing better. This type of insight is helpful in knowing where to focus your resources.

Using new customers/revenue to reduce churn rates

Many SaaS businesses make the mistake of looking at total customer/revenue growth or loss over a given period. Doing this does not give you a full picture of where your churn stands. You need to be specifically looking at both customers and revenues you’ve lost. This would not include any new customers that have signed up.  This will give you a more precise view of potential issues that are adding to a high churn rate and help diminish the further loss of  business.

Not considering subscription length when calculating churn

Subscription cycles tend to be different for many SaaS businesses; therefore, you should not be using the same time intervals to calculate churn.  Some companies are renewing on an annual basis and not monthly.  Segmenting churn by subscription length will help you recognize and solve any retention problems before they get out of control.

Incorrectly analyzing churn results

There are 2 common mistakes that are made when it comes to churn rates and it mostly has to do with how the results are analyzed. The first thing you should have is an idea of what an acceptable churn rate is for your business. 0% sounds great but it is not realistic.  A 5-10% churn rate for a given period is considered acceptable. With that being said, if you have a low cost service that you offer, a higher churn rate may not be deemed too bad. On the flip side if you are catering to big corporations, even a low churn rate of 5% may be too high.

Failing to Identify the Reasons for Churn

When it comes to battling churn, having the right knowledge is power. Most companies focus on lowering their churn rate without taking into account the reasons behind the numbers. Improving customer support and coming up with improved services are important but they most likely are not the actual reasons behind your churn problems.

Analyzing customer and revenue churn rates over different time periods and churn rates from one interval to the next will give you some understanding as to what else may be contributing to your loss of customers.  These numbers analyzed alongside marketing efforts during the same time period, customer satisfaction data, customer support data and other metrics, will help you attain a better understanding of your churn.