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Tracking churn rates is a challenge every Customer Success Manager (CSM) faces. But setting realistic churn targets and benchmarking against industry norms isn’t easy. Leadership wants to know if your numbers are good enough, and you need solid data to back your strategy.
So, how do you know what a “good” churn rate looks like for your business – and more importantly, how do you get there?
This blog explores key benchmarks for SaaS churn, factors that influence churn rates, tips for effective benchmarking, and why managing churn well is essential for long-term growth and profitability.
What is a good churn rate for SaaS companies?
Understanding what qualifies as a “good” churn rate can give your Customer Success team a solid benchmark, but it’s not always one-size-fits-all.
Different SaaS models, customer segments, and business stages can impact what’s achievable. Here’s a quick breakdown of common benchmarks to help you evaluate your performance.
Monthly churn below 4% is a good target
Source: Recurly
This is the gold standard for SaaS companies aiming to maintain healthy retention. While a less than 4% monthly churn rate may only be immediately possible for larger companies that have a loyal customer base, it’s an ideal goal for smaller companies to strive for as well.
Aim for an Annual churn rate of 4.5%- 5% as established company
Source: Forbes
Though there is some variation across industries, companies that have grown beyond the early startup phase tend to stabilize within this range.
If you’re interested in how annual churn rate varies according to the scale of the company, here’s a breakdown of some common benchmarks (Kalungi):
Anything above this rate may indicate friction points that need attention.
Enterprise SaaS tends to see lower churn
Source: Goodmanlantern
With longer contracts, high-touch engagement, and complex onboarding, enterprise customers are harder to lose – but they also take longer to win.
enterprise SaaS firms often aim for an annual churn rate below 5%, which translates to a monthly churn rate of approximately 0.4%
SMB SaaS generally experiences higher churn
Source: Kalungi
Smaller businesses have shorter lifecycles and more budget constraints, leading to quicker turnover. Factors such as shorter contract durations, lower switching costs, and greater price sensitivity among SMB customers contribute to the higher churn rates.
According to industry benchmarks, SMB SaaS businesses can expect monthly churn rates between 3% and 7%,
Startups often see higher churn
Source: Cobloom
It’s not unusual for newer SaaS businesses to experience higher churn as they refine their product and processes. Churn tends to stabilize as the business matures.
These benchmarks offer helpful guidelines, but factors – like product fit, customer engagement, and economic conditions – also influence churn. Next, let’s look at some of the key drivers behind churn and how they impact retention.
Factors that influence churn rates in SaaS companies
While benchmarks provide useful targets, understanding what drives churn within your company is essential for effective management.
Several factors impact churn rates, and knowing where these challenges lie can help you develop strategies to keep customers around longer. Here are some common factors to watch for:
1. Product complexity
Complex products that require extensive setup or steep learning curves often struggle with higher churn. If customers can’t see value quickly, they may stop using the product before fully adopting it.
2. Onboarding challenges
Poor onboarding can lead to early churn, especially if customers aren’t guided effectively through the initial setup. A structured onboarding process ensures customers start off on the right foot.
CSMs can enhance this process by using automated playbooks and checklists with tools like Velaris, providing new users with a clear, consistent path from setup to value realization.
3. Customer engagement
If customers aren't actively engaging with your product, they’re more likely to churn. Inconsistent product usage can signal that customers aren’t seeing the value or have found alternatives.
4. Economic factors
Market downturns and budget cuts affect customer retention, particularly for small and medium-sized SaaS businesses. Even satisfied customers may churn when budgets are tight.
Identifying these factors in your own business provides valuable insight into which customers are at risk and where to focus your retention efforts.
Next, let’s explore how to benchmark your churn rate effectively, so you can set realistic goals that align with your specific business model and customer base.
How to benchmark your churn rate effectively
Benchmarking your churn rate against industry standards is a good way to assess how well you’re performing.
But it’s important to recognize that not all SaaS businesses are alike – churn varies depending on your business model, customer segment, and stage of growth. To gain meaningful insights, you need to dig deeper into the unique dynamics of your customer base.
1. Evaluate churn by customer cohort
Not all churn tells the same story. Breaking churn down by customer cohorts – such as new customers, long-term customers, or specific product tiers – can reveal where issues lie.
For example, higher churn among new customers might point to an onboarding challenge, while churn among long-term users may highlight gaps in product engagement or support.
2. Use health scores to identify trends and tailor retention strategies
Monitoring customer health metrics – such as product usage, engagement, and sentiment – provides valuable insights that allow you to act proactively.
By identifying patterns within these metrics, you can develop retention strategies that address the specific needs of different customer cohorts, ensuring more meaningful and targeted interventions.
With tools like Velaris, this process becomes even more seamless. Velaris aggregates key signals – from product activity to customer sentiment – into comprehensive health scores, giving CSMs the visibility they need to make informed, data-driven decisions and improve retention across all customer segments.
By benchmarking churn in context and using cohort analysis, you can move beyond industry averages to uncover actionable insights.
Conclusion
Churn is an unavoidable part of running a SaaS business, but understanding and managing it effectively can make a significant difference in your long-term growth. By benchmarking your churn against industry standards, evaluating it within specific customer cohorts, and focusing on retention strategies like better onboarding and customer engagement, you can keep churn in check.
Churn management is essential for improving key metrics like Net Revenue Retention (NRR) and CLV, both of which directly impact profitability and growth. Tools like Velaris can make this process easier by helping you track customer health metrics, automate workflows, and align success plans with customer outcomes, ensuring you’re always ahead of potential churn risks.
If managing churn is a priority for your business, consider how Velaris can support your efforts. Book a demo today to see how Velaris can help you reduce churn and increase long-term retention.
