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A high churn rate can significantly impact a company's profitability

Customer retention, often referred to as 'account management', 'churn management' or 'customer success', is an organizational keystone that has been put on the back-burner or even entirely ignored for long periods of time at all kinds of subscription-based companies for decades. This has also held true for many B2B SaaS companies - here, the primary focus has been on acquiring new customers for most of these companies, because 'new revenue growth should be main indicator for any 21st century SaaS outfit'. In the traditional business sense, customer acquisition has always been the main focus for growth in ALL industries, so it isn't right to start throwing blame at people because of these perceptions. However, times are definitely changing, and we all have to keep up with these changes. What many (but not all people) do not realize is that customer acquisition is just one aspect of growth. Without even a basic focus on retention, the churn rate is most likely going to be significantly higher than what it could be, and this could be seriously stymying your growth, i.e. to a significantly greater level than you may initially perceive. From a management perspective, it is essentially undermining the hard work invested in new customer acquisition by your sales and marketing teams, both in terms of time and money. Another problem here is, if you are in the B2B SaaS space, it is more likely that your customer target market is most likely in the thousands or even possibly in the hundreds range (rather than being in the millions range, which is nearly always the case in B2C spaces). The problem here is, with such a small potential market, once a customer churns, they most likely did so due to a bad experience, or due to a feeling of being un-nurtured, stemming from the lack of a retention strategy - meaning that they will probably never reconsider returning to your platform. This is essentially making your small B2B target customer segment even smaller.

When looking at a summary of stats, is very easy for a firm to compare their conversion and churn rate and say: 'Hey, our new MRR (monthly recurring revenue) from conversions is 10%, our lost MRR due to churn is 4%, conversion is outpacing churn, we have a net growth of +6%, so therefore churn is not a problem. Am I right?". Answer: NO. At first glance, it's very easy to say that 4% is an almost insignificant number to be worried about, or, as there is a sizeable net gain, the company is growing and therefore there is no problem, case closed. However, if you look into this with just a little extra perspective, the results can be pretty surprising. I shall provide you with a crude yet representative example. Imagine that there are two companies: Company A, and Company B. At the beginning of 2017, both have the same recurring revenue of $100,000 per month in Month 1. Now some stats:

  • Company A has a new MRR rate of 7%, and a churn MRR rate of 4%
  • Company B has a new MRR rate of 7%, and a churn MRR rate of 2%

It's easy for many to think, that, well, the annual revenue for 2017 won't be significantly different because the firms both have the same conversion rate, or both companies have a net gain and are growing so it's all good. However, as you will see below, this is definitely not the case:

  • In Month 12, Company A has an MRR of $142,500
  • In Month 12, Company B has an MRR of $179,500

Astonishingly (or perhaps not so astonishingly), by Month 12, Company A is generating $37,000 more per month in recurring revenue. When you total the differences across an entire year, the differences are a difference in end-of-year annual revenues in the six-figure range. It's clear that it's nonsensical to even have a basic retention strategy in place to optimise monthly recurring revenue. When a firm is still in a relatively young, high growth stage, it is tempting to put all focus into acquisition - but considering the comparison above, it's probably not a prudent strategy long term. Things are always better with a strong foundation!

Whilst there are many different ways to approach this problem, Traitly do offer a unique solution for reducing churn. Feel free to contact us and we can help you reduce churn to optimise your revenues.

This post is written by James (james@traitly.com). James is the Customer Success and Sales Lead at Traitly. Previously, he worked at xSellco, a fast-growing SaaS company. Given his background in engineering, he takes an analytical approach toward customer success.

James Moran

James Moran

James is the Customer Success Lead at Traitly. Previously, he worked at xSellco, a fast-growing SaaS company. Given his engineering background, he takes analytical approaches toward customer success.

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A high churn rate can significantly impact a company's profitability
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