Controlling SaaS churn
The bane of every SaaS business is churn. Nothing is more discouraging than a great sales month being offset by a heavy month of churn. Churn happens at every SaaS business and the general rule of thumb is 20%+ of annual gross dollar churn is a problem, 10% to 15% is good, and anything lower than 10% is exemplary.
Gross dollar churn is important, but in our view net dollar dollar retention is the critical figure to watch. It is generally defined as revenue from customers in the beginning of a period — revenue churned — revenue downgraded + upgrades all divided by revenue from customers in the beginning of a period (BEG — DOWN — CHURN + UPGRADE / BEG). The period is generally annual. We know of 49 publicly traded SaaS businesses that reported net retention when they went public and on median, their net retention is 111%, meaning upgrades by existing customers outweigh lost revenue/downgrades.
What can be done to control churn? Below are a few guidelines:
Do a fantastic job of onboarding new clients. The first 90 days is critical for any new client so make sure someone on your team is dedicated to a successful onboarding and ramp up of a new client. Your onboarding person should follow up every 90 days and offer to onboard any new employees or retrain old ones for free.
Make sure you have more than one champion. A big reason for churn is that your main contact or champion at the client has moved onto another job. Prevent this by ingratiating as many members of your team with as many high level execs as you can at the client. Your account executive, head of onboarding, and head of customer success, and even the founders need to all have good contacts at every client just in case someone at the client leaves, or in case one of your employees leaves (don’t make the mistake of letting one employee be the manager of all of your client contacts).
Contact the client often. At a minimum, someone at your organization should contact each champion at the client at least once a quarter. Make it a call, not an automated email. The original AE that sold the deal should check in periodically as well and use it as an opportunity not only to make sure everything is going smoothly, but also to add more seats, upsell features, etc.
Add users. The more users of your product there are at any one client, the stickier that client becomes. Even if they’re not senior personnel, those users can make a lot of noise about the importance of your product to the organization, preventing senior personnel that might not be using your software day to day from errantly cancelling the service because they don’t realize how important you are.
Multi-year contracts. Incentivize your sales team to sign customers to multi-year contracts. No enterprise should be allowed to sign on month to month or even quarterly renewal.
In summary, contact is the key. Make sure you hand hold the customer through the onboarding process, you’re establishing multiple touch points, you’re reaching out to those touch points at least quarterly, and evangelize via many users.
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