Click here for Part 1 of this article about common mistakes in calculating your SaaS business’s churn, how these mistakes can hurt your bottom line, and the simple steps you can take to make sure your churn assessment is accurate and meaningful.
3. Calculating Churn Using the Wrong Time Intervals
Not all SaaS subscription cycles are equal, and not all SaaS businesses should be using the same time intervals to calculate churn. In fact, you’ll probably want to look at your churn rates over several different intervals to see if there are any noticeable patterns—seasonal fluctuations, etc. But a company with annual contract renewals should approach their churn calculations differently than a month-to-month SaaS provider, and changing fee schedules (if applicable) should also be taken into account.
4. Setting the Wrong SaaS Churn Rate and Reduction Targets
The last two common mistakes made when it comes to churn rates aren’t problems with the calculations themselves, but problems with how the calculation’s results are analyzed.
First, it’s important to know what level of churn is acceptable, and this can change depending on your business. 0% churn is everyone’s goal, but literally no one reaches it; for most SaaS businesses, a churn rate of 5-10% during a given time interval is deemed acceptable if not exactly stellar. If you have a low-cost service that focuses on consumers, though, a higher churn rate might not spell disaster, while if you cater to smaller niches populated by large corporations even 5% churn might be too much.
Analyze your churn rate in light of your pool of potential customers, your niche’s competitiveness, and the proportion of your revenue an average customer provides. Not all churn rates are equal, even if the percentages are the same.
5. Failing to Identify the Reasons for Churn
Finally, many companies obsess about lowering their churn rate without taking the time to look at the stories the numbers provide. Providing better services and more robust support are always important for SaaS businesses, but are those really the root of your churn problems?
Comparing customer and revenue churn rates, churn rates over different time intervals, and churn rates from one interval to the next should provide some insight into what other factors might be contributing to your customer losses. Analyze these numbers and patterns alongside customer satisfaction data, marketing efforts over the same time period, support logs, and other metrics and you’ll have an understanding of your company’s churn that is far more useful than a single, standalone number.
Bonus: Don’t Make the Mistake of Churn Obsession
Interestingly, churn paranoia is one of the only things SaaS companies and the Amish have in common. But while understanding churn is an essential part of life on the farm and in the high-tech world of software development, the Mennonites are often better at compartmentalizing their efforts and moving on to other tasks.
Make the right calculations, do the analysis, and take efforts to reduce your churn and keep your revenue streams as smooth as butter (yeah, we went there). Don’t make churn the metric that determines your entire success as a company or self-worth as a human being, though—it’s important, there’s no question, but it’s not the sole determiner of your continued SaaS growth and profitability.