Average SaaS Churn Rates: Four Factors That Affect Churn Rate

Written by
John Doe
Published on
January 11, 2025
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Table of Contents

Executive Summary

  • Churn threatens SaaS growth—high cancellation rates can stall revenue and sustainability.
  • Understand churn metrics: Monthly churn compounds over time, meaning a small monthly churn rate can lead to significant annual churn.
  • Benchmarking churn helps identify weaknesses, set realistic retention goals, and stay competitive.
  • The average SaaS churn rate is 3.5% per month, but the ideal rate depends on factors like B2B vs. B2C models, company growth stage, pricing, and contract length—always compare apples to apples.

Reducing churn requires a proactive approach: Personalize engagement, enhance customer experience, and act on feedback to build long-term loyalty.

Churn is the silent killer of SaaS companies.

It’s the percentage of customers who cancel or fail to renew their subscriptions within a given period—and when churn is too high, it can quietly erode a company’s growth. Unlike traditional software sales, where revenue comes from one-time purchases, SaaS companies rely on recurring subscriptions. That means if customers stop seeing value, they can leave just as easily as they signed up. This makes tracking and reducing churn not just important, but essential for long-term success.

A high churn rate is a warning sign. If customers are leaving faster than new ones are coming in, growth stalls, and sustainability becomes a challenge. It could signal poor product-market fit, lackluster customer support, a failure to innovate, or stronger competitors offering better alternatives.

On the other hand, a low churn rate is a sign of strong customer loyalty and satisfaction. It means customers see ongoing value in the product and are choosing to stay. In today’s competitive SaaS landscape, maintaining a low churn rate isn’t just a goal—it’s a necessity for long-term success.

But churn is more than just a metric; it’s an indicator of deeper business health. Managing it isn’t just about reducing cancellations—it’s about building a strategy that prioritizes customer experience, addresses pain points, and fosters long-term relationships. The companies that master churn management don’t just retain customers; they create loyal advocates who drive sustained growth.

How Do You Measure Churn?

Before diving into benchmarks, let’s break down how churn is measured. There are two primary churn metrics to track: monthly churn and annual churn.

  • Monthly Churn: Measures the percentage of customers lost in a given month. This provides short-term insights into customer retention trends.
  • Annual Churn: Measures the percentage of customers lost over a year. This metric offers a broader view of customer retention.

One important distinction is that monthly churn compounds over time. A 5% monthly churn does not translate to 60% annual churn—it actually results in 46% annual churn due to compounding. To convert between monthly and annual churn, use this formula: Tracking both metrics helps SaaS companies understand their customer retention trends on both a short-term and long-term scale.To convert between these metrics, use this formula:

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To help you out, here's a helpful chart we calculated:

Why Benchmark Your SaaS Churn Rates?

Benchmarking your churn rate against industry averages is crucial for understanding performance and setting realistic retention goals. Here’s why it matters:

  • Gain Competitive Insights: Comparing your churn rate to industry benchmarks helps you gauge where you stand relative to competitors.
  • Identify Retention Weaknesses: If your churn rate is higher than industry norms, it signals a need to improve customer retention strategies.
  • Set Realistic Goals: Industry benchmarks provide a reference point for setting achievable churn reduction targets.
  • Justify Investment in Retention: High churn rates can justify increased spending on customer retention initiatives, such as improved onboarding or proactive churn prevention.
  • Track Progress Over Time: Regular benchmarking allows you to measure progress and refine retention strategies.

Remember: churn is inevitable, but this doesn’t mean you can’t minimize it.

Statistics on Average SaaS Churn Rates

So, what constitutes a good churn rate? The short answer is that the average SaaS churn rate is 3.5% per month—with 2.6% voluntary churn and 0.8% involuntary churn. (Recurly Research) This compounds to an annual churn rate of 34.8%.

The longer and more accurate answer is that a good churn rate is relative to your business characteristics. Within the same industry, there are material factors that affect what would be considered a good churn rate for your business. These include: 

  • B2B vs. B2C business models
  • Company growth stage
  • Subscription price point
  • Contract length

Keep these factors in mind to ensure you’re comparing apples to apples.

Factor 1: B2B vs B2C 

Churn rates differ significantly between B2B and B2C companies. B2B companies often enjoy lower churn rates thanks to longer contracts, deeper workflow integrations, and higher switching costs. B2C companies, in contrast, experience higher churn due to shorter contract durations and price-sensitive customers.

According to the same Recurly report, across industries, the average churn rate for direct-to-consumer (DTC) businesses in industries like Digital Media, Retail, and Education is 6.5%, whereas B2B industries such as Software and Professional Services average only 3.8%.

Factor 2: Growth Stage

According to ChartMogul, churn rates also vary depending on a company’s growth stage. Their data reveals that mid-sized companies experience the lowest churn, particularly those with an annual recurring revenue (ARR) between $8M–$15M.

This trend can be attributed to several factors:

  • Established Customer Base - At this stage, companies have typically moved beyond the volatile early startup phase and have built a more loyal and engaged customer base. Their product-market fit is stronger, leading to higher retention rates.
  • Mature Onboarding & Customer Success – Mid-sized SaaS companies have the resources to invest in structured onboarding, proactive customer support, and retention strategies, helping reduce churn.
  • Balanced Growth vs. Stability – Unlike early-stage startups that may struggle with inconsistent revenue streams or product issues, mid-sized companies have optimized pricing, marketing, and sales processes, leading to more sustainable customer relationships.
  • Customers Are More Invested – By this stage, many customers have already integrated the product into their workflows, making switching costs higher and churn less likely.

However, as companies scale beyond this mid-size sweet spot, they may begin to experience higher churn again due to market saturation, increased competition, and the challenge of maintaining personalized customer engagement at scale.

Factor 3: Price Point 

Churn rates also correlate with average revenue per account (ARPA). According to the same ChartMogul article, companies with higher ARPA tend to have lower churn rates. For companies with an ARPA of less than $25 per month, the median monthly customer churn rate is 6.1%. On the other extreme, churn drops to 1.8% for companies with an ARPA of over $1,000 per month.

This trend can be explained by several factors:

  • Low-cost subscriptions (ARPA < $25) churn faster because they often attract price-sensitive consumers or businesses that make impulsive purchasing decisions. These customers have minimal financial commitment and can easily cancel or switch to alternatives without much friction.
  • Higher-cost subscriptions (ARPA > $1,000) have lower churn because they are typically associated with enterprise-level contracts, deeper product integrations, and higher switching costs. These customers have longer onboarding cycles, greater reliance on the product, and more internal buy-in, making it harder to justify cancellation.
  • Perceived value plays a major role—as the cost of a subscription increases, businesses expect greater ROI and are more likely to invest time in fully utilizing the product, leading to longer retention.
  • Commitment levels differ—low-cost SaaS products often rely on self-serve models with minimal engagement, while high-ARPA businesses benefit from dedicated customer success teams and personalized support, reducing churn risk.

Ultimately, SaaS businesses should align pricing strategies with customer expectations and ensure that even lower-cost tiers provide enough value to discourage cancellations.

Factor 4: Contract Length

Longer contract commitments reduce churn by keeping customers engaged for extended periods. Monthly subscriptions have higher churn since they allow for frequent opt-outs, while annual contracts promote retention.

The 2024 KBCM Technology Group Private Company SaaS Survey of 150 private SaaS companies found a clear trend: longer contracts significantly lower churn rates. This is because annual subscribers reassess their commitment less frequently, have stronger product adoption, and often receive better onboarding and customer support. Additionally, many SaaS companies offer incentives like discounts or exclusive features for longer-term plans, further improving retention.

While monthly plans provide flexibility, businesses looking to reduce churn should encourage longer commitments through strategic pricing and enhanced customer value.

How to Reduce Churn Rates

We’ve already covered Customer Churn: What It Is and How to Reduce It in a previous blogpost. 

The main strategies are:

  • Analyze churn root causes by gathering customer feedback and identifying common pain points.
  • Engage customers proactively through personalized communication and exclusive offers.
  • Educate customers for success with onboarding programs, tutorials, and webinars.
  • Leverage data and predictive analytics to identify at-risk customers and intervene early.
  • Offer incentives for loyalty, such as discounts, rewards, or exclusive features.
  • Continuously gather and act on feedback to enhance customer experience and retention.

Conclusion‍

Churn is a critical metric that SaaS companies must monitor closely. While the average churn rate in SaaS is around 3.5% per month, the “right” churn rate depends on factors such as business model, pricing, company stage, and contract structure. Benchmarking against industry standards helps businesses identify weaknesses, set realistic goals, and prioritize retention strategies. Ultimately, managing churn isn’t just about reducing cancellations—it’s about delivering value, fostering loyalty, and driving long-term growth.

To take churn management to the next level, advanced tools like LiveX AI ChurnControl provide AI-driven solutions that personalize customer engagement and improve retention. ChurnControl identifies at-risk customers and initiates tailored interventions, such as contextual support, personalized offers, or re-engagement strategies.

An optional AI-powered avatar enhances customer interactions by delivering a human-like, face-to-face-style digital experience. This feature fosters stronger customer connections, boosts satisfaction, and strengthens retention efforts.By integrating advanced churn management solutions, SaaS companies can optimize customer retention, build stronger relationships, and drive sustainable growth.

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