Enterprise SaaS churn rates that drive growth in 2022

Enterprise SaaS churn rates that drive growth in 2022

Enterprise SaaS churn rates are quite a tricky thing to get right.

At the end of the day, all you really need to do is lower the number of enterprise clients who cancel their subscription to your SaaS product.

But there are a ton of factors that have influence over churn rate. And those factors are unique in the enterprise world! They can be far different than reducing churn when working with SMBs, indie businesses, etc.

So let’s focus exclusively on reducing enterprise SaaS churn rates. If you’re running a SaaS businesses that serves enterprise clients, this guide is for you.

Don’t give us your email address

We don’t want it!

If you’d like to hear about our successes, failures and challenges as we build Driftly in public, follow us on Twitter.


Table of contents


Implement product tours in just 5 minutes

Driftly Homepage With Tour

Use no-code product tours to nudge users towards that WOW moment. Guide your customers towards the most impactful areas of your software as they breeze through onboarding, adopt core features and become life-long power users.


What is churn rate?

If you’re reading up on enterprise churn, you probably already have a pretty good idea what it is.

Simply put, churn measures how slowly (or quickly) either users or revenue is leaving your business through cancellations, etc.

But there’s more. Let’s do a quick review of the 2 kinds of enterprise SaaS churn rates you need to worry about and how to calculate them both.

Back to top

Calculating SaaS user and revenue churn rates

User churn

User churn measures the percentage of users who leave your product or services monthly or annually.

= (Total # of customers that cancel during a time period) / (Total # of users at start of that time period)

For example, let’s say you have 100 total customers and 2 cancelled (or churned) last month.

Here’s the equation calculating churn for this scenario.

= (2) / (100)

= 2%

Revenue churn

Revenue churn is the same calculation as user churn, just with one major difference.

It measures the percentage of MRR (not users) that leaves your product or services monthly or annually.

= (Monthly Recurring Revenue lost during a time period) / (Total MRR at start of that time period)

Let’s talk through a SaaS example to give us a clearer picture. Let’s say you have 10 users paying your Platinum Plan of $10,000/mo and 10 users paying $1,000/mo for the Starter Plan. Let’s also pretend in this example that you lost 1 Platinum subscriptions and 2 Starter subscriptions last month.

= (Monthly Recurring Revenue lost during a time period) / (Total MRR at beginning of that time period)

= [($10,000 x 1) + ($1,000 x 2)] / [($10,000 x 10) + ($1,000 x 10)]

= [($10,000) + ($2,000)] / [($100,000) + ($10,000)]

= ($12,000) / ($110,000)

= 10.91% monthly churn

Back to top

Why do larger, enterprise clients churn at lower rates?

Generally speaking, enterprise SaaS churn rates are lower than churn rates for smaller companies.

Everything is slower for larger companies when it comes to work with vendors.

  • They buy more slowly. This is because most enterprise companies have lots of requirements and need to pick a vendor that will address most of them.
  • They communicate more slowly. This is because enterprise companies have bigger teams of people and getting permissions and buy-in across the company takes time.
  • They churn more slowly. This is because once they find a solution that works, that long and slow sales process isn’t something they want to go through again if they can help it.
@andrewchen

Worth reading: Churn benchmarks for SaaS companies via Profitwell. Higher MRR correlates with lower churn. One way to read this is that enterprise customers churn less!

See the tweet

Back to top

What is a good churn rate (or retention rate) for enterprise SaaS?

This is a difficult question to answer with all enterprise SaaS companies being so different.

That being said, every business that serves enterprise clients has one thing in common.

A long, costly sales cycle.

Enterprise clients are notoriously slow when it comes to investing in new tools. See: why do larger, enterprise clients churn at lower rates?

They have to do an assortment of due diligence before they’re able to actually buy and implement new SaaS tools.

  1. Exhaustive information gathering across all teams involved on what problem(s) need to be solved
  2. Detailed documentation focused on must haves vs nice to haves, problem(s) being solved, etc
  3. Wide search to find software options that solve basic problems outlined in documentation above.
  4. Deep analysis to compare features, reviews, pricing, integrations, technology stack, etc to compare all software being considered
  5. Multiple meetings & demos to make sure every option is not just well-researched, but test driven
  6. Gather opinions from all internal players and teams involved
  7. Present options to multiple stakeholders as needed to gather feedback, get buy-in, etc
  8. Select finalists based on all data from steps above
  9. Security review from IT to make sure there’s no risk to any infrastructure they’ll be integrating with the software
  10. Legal review to make sure they’re positioned well in the deal
  11. Select winner based on all data from steps above
  12. Final sign off from team leaders, company leadership, etc
  13. Working with procurement to negotiate on pricing and what’s the contract covers (especially if it’s a customized contract)
  14. Sign final contracts

Sure, sometimes an enterprise SaaS deal can be completed quickly. This is especially true if you have a free trial somebody can spin up fast to get buy-in from others at the organization.

But more often than not, this sales cycle takes weeks, months or even years in some cases when the risk of making a wrong decision is that significant.

This means your company will probably spent a LOT of time going through the sales cycle with enterprise clients to get them across the finish line.

@tomzur

After onboarding and things are “in place” this number [enterprise churn rate] is lower compared to the average customer. But the sales process takes more time as they want to make sure they select the right vendor and solution where they can run their projects for the next years.

See the tweet

Maybe your team will spend a total of 50 hours on this?

Perhaps 100?

Could it be 500?

If your business is spending 100 hours on sales for a single enterprise client, and your team earns an average of $100/hr, you’ve just spend $10,000 just in time alone landing that customer.

The point of this calculation is meant to suggest that there’s no single churn rate or retention rate that every company needs to be aiming for.

Your churn rate simply needs to be low enough to ensure your clients have a lifetime value high enough to make your company profitable when you take Customer Acquisition Cost (CAC) into account.

  • Let’s say you spend an average of 10 hours at $50/hr closing an enterprise client. Your average enterprise client costs you $500 to close. You can probably get away with a higher churn rate of 5-15% for a while since your CAC is low.
  • Let’s say you spend an average of 100 hours at $100/hr closing an enterprise client. Your average enterprise client costs you $10,000 to close. You need a lower churn rate of 3-5% since your CAC is high.
  • Let’s say you spend an average of 1,000 hours at $200/hr closing an enterprise client. Your average enterprise client costs you $200,000 to close. You need a super low churn rate of 1-2% since your CAC is ridiculously high.

These numbers are only integrating time as a cost for the simplicity of the example. They don’t incorporate sales software, flights & hotels for in-person meetings, etc.

In general, your churn and retention rates need to fight against high customer acquisition costs and give you higher customer lifetime value to fuel your business for the long-term. If your churn rate is too high, you’ll spend too much acquiring customers that don’t generate revenue for your business and eventually your bottom line will suffer.

Back to top

Churn benchmarks for enterprise B2B & B2C SaaS products

Benchmarks can be a helpful way to see how your churn rate compares with others in your industry.

For more data, let’s take a look at 2021 subscription churn benchmarks from our friends over at Profitwell.

They crunched data from 30,000 SaaS & subscription companies to show how churn & cancellation rates are trending.

Here are the related results for people who work with enterprise-level clients:

Revenue churn rates broken down by Average Revenue Per Customer (ARPU)

  • $501 – $1,000 | General: 5.22% | B2B: 3.08%
  • $1,001 – $2,500 | General: 4.12%
  • $2,501 – $5,000 | General: 3.98%
  • $5,000+ | 2.94%

Revenue churn rates broken down by industry

  • Midmarket, Enterprise (SaaS) | 2.65%
  • SMB (SaaS) | 3.35%

Based on the large data set analysis above, you can see a benchmark starting to take shape! If you know your ARPU (average revenue your customers pay you per month), your exact benchmark enterprise churn rates are listed above. Regardless, if you’re serving enterprise SaaS clients, a solid benchmark churn rate is between 3-5%. Under 2% churn means your churn rate is elite.

The report from Profitwell also goes into more details with on revenue churn rates broken down by region/continent, funding amount, B2B vs B2C, and much more.

Download it today!

Back to top

How do you lower enterprise SaaS churn rates?

Finally!

We’ve defined churn, learned to calculate it and put enterprise churn rates into context with benchmarks.

Now let’s learn how to actively lower enterprise churn rates.

1. Break down when the most churn is actually happening

Like most general data, churn rate should be used to tell you about the general trend of cancellations.

But you need to dive deeper into the data in order to improve it!

Let’s say you saw 10% churn last month.

  • Which customers actually churned?
  • Were they mostly customers who just signed up last month or older customers?
  • Were the majority of people who cancelled at a similar place in their product adoption journeys?

Tools like Baremetrics have cohort analysis so you can easily gather more information on exactly what customers are cancelling, why they’re cancelling and try to reduce cancellation when it’s happening the most often.

This view allows you to see big jumps in cancellations, attribute churn to specific events and find solutions to lower churn where it’s the most active!

2. Put a bigger focus on product and feature adoption

There’s a reason why every successful SaaS company working with enterprise clients have huge product teams.

They need to work relentlessly on product adoption (and feature adoption) to make sure enterprise clients are having great onboarding experiences to lower their chance of churning.

  • Track both feature adoption and product adoption for individual clients. The more powerful features your enterprise SaaS clients adopt, the more completely they’ll adopt your product and make it a core tool internally. And more importantly, you can see which features certain clients haven’t tried yet and help nudge them towards using those features for the first time and eventually regularly.
  • Implement product tours within your software. A tool like Driftly is really effective at minimizing enterprise churn because it gives new users a personalized experience that introduces them to your most powerful features immediately. Plus Driftly has built-in analytics so you to see which of your features are being seen initially and which aren’t.
Driftly Homepage With Tour
Product tours that actively reduce churn!
Driftly Analytics
Product tour analytics to show which features are getting the most activity (and which aren’t getting enough attention).

Give these two guides a read, take good notes and bookmark each so you can re-read them regularly.

Give these two guides a read, take good notes and bookmark each so you can re-read them regularly.

How to promote feature adoption and discovery

How to drive SaaS product adoption

3. Talk to customer

This one seems simple but so many SaaS companies out there don’t do this!

If you’re working with enterprise clients, there are a few good ways to get feedback on cancellations before they happen

  • Make sure you’re actively listening and gathering feedback during meetings. Most likely if you’re working with enterprise companies, you’ll have regular calls or meetings with stakeholders to review progress, answer questions, etc. Always take detailed notes on pain points, challenges, etc the clients are having so you can address them for your entire client base. Even better, you can make sure a part of the call agenda is specifically focused on feedback and challenges so you can have an open and honest conversation with your enterprise clients.
  • You can also ask about challenges and feedback by manually emailing your most active stakeholders. Often this may not be the “biggest” stakeholder, but a junior person who actually may have more time to give you a detailed reply. Do all the heavy lifting yourself by including all your questions and emails in the email body so all they have to do is reply. You could also use a tool like ZipMessage to trade video messages back and forth and speed up the process.

If an enterprise client actually does decide to cancel, here are a few ways to get feedback post-cancellation

  • Implement an exit survey or exit interview. Getting folks who used to be clients to jump into an exit interview is hard but some will want to give you feedback on how your company could have served them better. At the very least, implement an exit survey that ex-customers can complete in their own time.
  • Do a postmortem. When working with big, enterprise companies that don’t churn very often, knowing exactly why they cancelled could help you keep your churn rate low in the future by addressing what caused this client to leave. Go through all your old call notes, emails, etc and write down all the potential pain points, unfulfilled feature requests and complaints that client gave. This might give you some insight into things you can do so the next cancellation doesn’t happen.

4. Tighten up sales and marketing

Most SaaS companies think churn starts after an enterprise company has signed up and is starting onboarding.

But this simply isn’t true.

The sales and marketing strategies you implement will also have a tremendous effect on whether those same clients will eventually cancel their subscriptions.

Here are some ways to sure up your sales & marketing work to help keep enterprise SaaS churn low…

  • Set grounded expectations. Make sure you’re not overpromising during sales calls, with your marketing copy and anywhere else you interact with potential enterprise sales leads. One of the biggest reasons people churn is a SaaS product not meeting the expectations they’re expecting.
  • Make sure you’re targeting the right enterprise companies. Not every big company is the same and not every marketing channel attracts the same kinds of customers. For example, if you’re attracting high-churn clients through social media, maybe inbound marketing via SEO will attract a higher-quality enterprise clients.
  • Make sure sales people are properly trained and incentivized. A commission-based structure has shown historically that it can be effective, but if people in sales are incentivized by the number (and size) of deals they close, they might tend to overpromise simply to close the deal and collect their bonuses. Kinsta implements a commission structure that pays out sales bonuses based on new customers staying 6 months, after most churn happens. This means the sales team is incentivized to close deals that will have long lifetime value for the company and keeps churn low at the same time.

5. Improve documentation and support

Documentation and support go hand-in-hand because they’re both ways to help your customer base.

Documentation is self-help and support can help enterprise clients who just can’t overcome a challenge with your product through reading your docs.

@kotakmakan

Dang, I finally found a working enterprise product. Really nice one, indeed. Clear documentation, clear product structure. Those go a long way in creating a self learning environment for consuming a SaaS product.

See the tweet

Both are important to keep enterprise churn low:

  • Keep your documentation updated. Enterprise companies often have multiple, if not many, people working in your software. Keeping docs up-to-date means multiple people on a team will be able to find the answers they need which will heighten your clout as a whole for your enterprise clients as a whole.
  • Make sure your docs are helpful for every kind of “seat” your product offers. Whether enterprise clients have admin seats, developer seats, standard seats, etc, everybody using your software needs to be find your documentation helpful.
  • Use support requests to update documentation. Make sure whoever is doing support keeps track of all the support requests that don’t have documentation written and add it to the queue for the team in charge of written new docs.
  • Make sure you support team has access to ongoing training. Support is often an afterthought but it’s often one of the biggest difference-makers when it comes to reducing churn. Keep internal documentation updated and get your support team together regularly to discuss challenges and ways to improve.
  • Set good support timing expectations. There’s nothing more frustrating for enterprise clients on a fast schedule to think support will come fast only for it to lag. Make sure your clients know how long they should expect for support during the sales and marketing process so it’s ingrained.
  • Speed up support. Often enterprise clients have extremely high expectations when it comes to being on-demand if they have a problem with your software. When working in the enterprise world, you’ll often find that providing same-day support instead of next-day will help reduce churn so if you have the bandwidth to do this, it might be worth experimenting with.
  • Minimize the number of POCs for any given enterprise client. If 10 people from the same enterprise client are sending in support requests, it will be tough for all those people to stay on the same page AND a challenge to keep support organized. Having enterprise clients select a champion for your software and funnel all their support requests through 1 or 2 people will help everybody stay on the same page.

Back to top

What’s next?

There you have it.

You started this blog post wondering, “how can reduce my enterprise SaaS churn rate?”

Hopefully you’ve learned a thing or two. Not just about actions you can take to lower churn, but benchmarks to aim for and context around working with enterprise clients as well.

If you can get enterprise SaaS churn rates to a level around or lower than those benchmarks, you can run one hell of a SaaS business.

You got this!

If you have any questions or want to chat about feature adoption, don’t hesitate to ask Driftly’s co-founders on Twitter!


Implement product tours in just 5 minutes

Driftly Homepage With Tour

Use no-code product tours to nudge users towards that WOW moment. Guide your customers towards the most impactful areas of your software as they breeze through onboarding, adopt core features and become life-long power users.