Churn paranoia in the SaaS world is all too real, and for good reason. Your revenues depend on continuing subscriptions to your software services, and losing customers means going out of business if you let your churn continue unchecked.
At the same time, many SaaS companies aren’t looking at churn in the right way—a way that enables them to take useful steps in combating it. Here, in no particular order, are five common mistakes when it comes to calculating SaaS churn, and what you can do to avoid them.
1. Calculating Only One Type of SaaS Churn
If you only offer one service at one subscription level, tracking customer churn will give you a clear idea of your revenue churn and vice versa—every customer lost will equal x dollars lost, time and time again. Few SaaS providers work this way, though; if you’re like most software providers, you have different subscription levels and possibly multiple products or enhancements that lead to varying revenues (and margins) from customer to customer. This means customer churn and revenue churn are both important to track.
Customer churn tells you how many customers you’re losing, which can give you an idea of necessary service and support improvements and how well you’re meeting your niche’s needs. Revenue churn is more directly applicable to your back-end business planning and can also help you identify prime areas for growth—if you notice higher rates of customer churn but relatively low revenue churn, your higher-price (and probably higher-margin) SaaS subscriptions are performing better, and that gives you insight that can help you better focus your resources.
Customer and revenue churn are clearly related, and should be examined in light of each other, but if you’re not tracking both independently you’re missing a lot of useful data.
2. Using New Customers/Revenue to Reduce Churn Rates
This one’s simple, and is obvious to some but is commonly overlooked by many SaaS enterprises: if you’re only looking at total customer/revenue growth (or shrinkage) over a given interval, you’re not seeing the full churn picture.
Overall growth rates are important to track, too, but churn means specifically looking at customers and revenues you’ve lost, without using newly acquired customers and revenues to balance things out. An SaaS business makes peace with gaining customers faster it loses them is a business headed for disaster—you want to stop the flow of customers away from your software services and add new customers at the same time. Calculate your churn without looking at new customers and revenue, and you’ll have a much more accurate view of your company and whether or not you have problems contributing to too-high churn that can damage your business in the long term.
Click here to continue reading 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.