What is good monthly churn
Benchmarks for good and great monthly churn, broken down by segment and price point
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Q: What is a good monthly churn for a SaaS business?
Look, I made a meme.
You could even argue that churn is both a leading cause of business death and the biggest tax on your growth đ€Ł
As Ben points out, churn is unavoidable. So what to do? Beyond constantly working to reduce churn, itâs essential that you understand what healthy monthly churn looks like for your type of businessâso that you know if youâre on track for đ or â ïž
Though you should generally spend your time focusing on cohort retention and net revenue retention instead of monthly churnâbecause monthly churn blends new and existing users and hides whatâs really going on long-termâitâs still a powerful metric, because itâs quick (you donât have to wait for cohort curves to flatten), itâs easy (every dashboard has this), and, most interestingly, it tells you how many new users you need to bring in each month in order to continue to grow. Losing 2% of users each month? Grow by over 2% and youâre đ
Depressingly, your monthly churn stat also tells you how quickly youâll churn through your users if you do nothing. For example, with an 8% monthly churn, youâll lose almost two-thirds of your users each year đ”âđ« Even with a 4% monthly churn, youâre rebuilding a third of your users base year after year. This is why SaaS businesses with revenue expansion (i.e. negative churn) are so sought-after.
But again, churn is normal and unavoidable. Step one is understanding what healthy (vs. deathly) churn looks like for your business.
What is GOOD and GREAT monthly churn
To come up with a benchmark, I came at it from two directions:
I reached out to all the smartest growth people I know and asked them what they consider GOOD and GREAT monthly churn when advising and investing in companies.
I asked Patrick Campbell, the founder and CEO of ProfitWell, to dig into his treasure trove of data (13,000 anonymized SaaS companies), to see what monthly churn real companies are seeing.
After hearing from the experts, and looking at Patrickâs data on the top percentile of SaaS companies, clear answers emerged:
For B2C SaaS: Between 3% and 5% monthly churn is GOOD, and less than 2% is GREAT
For B2B SMB + Mid-Market: Between 2.5% and 5% is GOOD, and less than 1.5% is GREAT
For B2B Enterprise: Between 1% and 2% is GOOD, and less than 0.5% is GREAT
Definitions
B2C SaaS: Subscription products sold to consumers; e.g. Duolingo, Spotify, Grammarly
B2B SMB + Mid-Market: Subscription products sold primarily to companies with fewer than 1,000 employees, generally charging less than $1K per month for the average customer; e.g. Gusto, Intercom, Airtable, Asana
B2B Enterprise: Roughly defined as subscription products sold primarily to companies with more than 1,000 employees, generally charging more than $5K per month for the average customer; e.g. Salesforce, Snowflake, Workday, ADP
Disclaimers and advice
This metric is looking at the steady state of churn. New user churn in the first month is always the steepest, normally ranges from 5% to 50%, and happens for a number of reasons.
âYou can often attribute month 1-3 churn to be failure of activation/onboarding. This can vary a lot across companies, and even within the same company by channel and funnel.
For businesses with paid user acquisition, the other factor is acquiring the wrong kind of customer. Iâve told more than one company: Hey, if you just cut your paid marketing by half, I bet your churn will go down!â
âChenLi Wang, ex-growth at Dropbox
As you grow, long-term, expect monthly churn to go down.
âMonthly churn on subscriber base decreases with age of the business as long-haul subs pull that number down.â
âElena Verna, growth at Netlify, ex- at Miro, SurveyMonkey
In a B2B SaaS business, net revenue retention is a more important metric than monthly churn.
âIn SMB/Mid-Market SaaS especially, revenue retention is much more important than customer retention.
For example, in the Shopify ecosystem, SaaS players will inevitably see âunavoidable churnâ due to shorter lifespan of smaller merchants. This is inherent to the Shopify model. Iâve seen the expansion for many commerce SaaS products look great as merchants grow/graduate to Shopify Plus. Net revenue retention can look very healthy even with low logo retention in these businesses.â
âMike Duboe, ex-growth at Stitch Fix, Tilt
For B2C SaaS, youâll want to focus primarily on cohort-based retention.
âI would only look at monthly churn to see how much you need to maintain new user acquisition to keep up growth. Other than that, you should look at it by cohort basis.â
âYuriy Timen, ex-growth at Grammarly, Airtable, Canva
Make sure to break churn down into its component parts.
âChurn should always be modeled between (1) intentional and involuntary churn and (2) soft and hard churn:
1. Intentional churn is when a user willingly decides to stop using the product. Where I see companies losing meaningful percentage points is in overlooking involuntary churnâgood data instrumentation can flag these events, like credit card declined, forgot password, connection errors.
2. If users stop using the product but are still paying for it (whether annually or monthly recurring), thatâs soft churn and should be a concern where value extraction is greater than value generation.â
âCrystal Widjaja, CPO at Kumu, ex-growth at Gojek
And finally, a healthy churn rate is highly dependent on your price point.
âThe higher the price point, the lower you should expect the target churn.â
âAdam Grenier, VP Marketing at MasterClass, ex-Uber
This last point is really important, so letâs explore it further.
What is GOOD and GREAT monthly churn, by price point
Why would churn be highly correlated with price? Two reasons:
Customer type: The cheaper your product, the smaller the businesses youâre likely selling toâand the smaller the businesses, the more likely they are to go out of business, change their minds, or switch to a competitor.
Unit economics: If itâs costing you thousands of dollars to close a deal, you wonât survive if too many of those customers churn. And so companies with a high price point donât last long if churn is too high.
To understand healthy monthly churn by price point (i.e. how much you charge each customer on average per month), Patrick sliced and diced the data, and with input from the experts, this is what we found: