Every month—or maybe even more often—you sit down with some other key folk from your SaaS business to see how many subscribers you’ve lost, how many you’ve gained, and what your churn rate is. You know you’ll probably never get to zero, but you’re hoping for the lowest number possible, and most importantly you want to see a downward trend each time you calculate your SaaS churn…
The answer is, not exactly. While lower churn is better than higher churn, all else being equal, and while a downward trend in your churn rate is rightfully accompanied by that warm and fuzzy feeling of success, there’s a major complicating factor that affects what each month’s churn rate really says about your SaaS business.
SaaS Subscribers Plunge Off the First Month Cliff
As a general rule, more subscribers leave an SaaS service—or any subscription service, for that matter—after the first month than at any other point in their lifetime value cycle. They’ve tried it, they decided it wasn’t worth the subscription cost, and they left. While you obviously want to reduce the number first time subscribers leaving your service, the reality of their higher rate of departure is something you should be aware of.
If you’re adding new subscribers at a consistent rate, then this first month cliff won’t really affect your overall churn rate that much. When the number of new subscribers coming on board remains steady, and the number deciding your service isn’t right for them is equally even-keeled, then those numbers—combined with the churn you’re experiencing in longer-term users—will give you a fairly steady and accurate understanding of your churn.
Chances are, though, you’re trying different marketing strategies and tactics, finding new channels for growth, and (hopefully) increasing the number of people who sign up for your SaaS offerings each month. You might experience some dramatic spikes in new subscribers some months, following an especially successful campaign, and you might see a slump in other seasons when people aren’t as interested in spending money on what you can provide.
These situations make that first month cliff an important variable in your overall churn rate. Say you typically lose 10% of new subscribers after the first month. When you’re consistently adding 20 new subscribers each month, that’s only two first-time subscribers lost to churn—probably not a huge percentage of your total subscribers. But then you do that webinar and have 200 new signups in a single month, and that 10% dropoff rate means a loss of 20 subscribers—a more substantial number than can make it look like your overall churn took a big dive.
The more new subscribers you add in a given month, the higher you can expect that churn to be—and the fewer subscribers in a month, the lower the churn in the next month will likely be. Separating your first-month user churn from your overall churn is often a good idea, as it will help you even out the bumps and get a better picture of how subscribers are responding to your business over the long term.