How we reduced churn from 12% to 3% for our B2B SaaS
This is everything we did to go from a 7-12% monthly churn rate to 3-4%. Hint: It was not without consequence.
Before: We used to average 7-12% monthly churn for our B2B SaaS, GrowSurf.
After: Nowadays, we average 3-4% monthly churn.
Introduction
The year was 2021 (a few years back) and our SaaS was growing nicely. Based on the amount of Stripe notifications coming in one particular month, we were crushing it. That month we ended up with +$8k in new MRR.
But that wasn’t the whole picture. We also got $5k in cancellations.
That new MRR did not come cheap. We had to fight hard for it. We were singing for our supper day in and day out. That churn represented 8 steps forward, and 5 gigantic steps back. Most other months, it was common to be 5 steps forward, and 4-5 steps backwards.
Although growth was net positive most months (or barely net positive some months), having thousands of dollars in hard-earned MRR consistently leaving us was brutal. Especially considering the costs of earning that MRR. This did not feel sustainable.
We had to fix this problem.
In this post, I’ll cover everything we did to “solve” this problem (AKA trade this problem for a different problem).
Table of contents
Background
Defining our “B2B SaaS”
Losing our minds
Growth was the #1 focus
Benchmarking a shit business
Problems
House of cards
The problem is simple
Solutions
Things we did to solve churn
Hiring to solve the problem
What really decreased churn
Aftermath
The good
The bad
The ugly
Summary
1. Background
Defining our “B2B SaaS”
Every B2B SaaS is built different, and so churn is different. Because of this, I would suggest taking everything in this post as anecdote instead of advice.
There are Enterprise SaaS, SMB, self-service, prosumer, high-ticket/low-ticket, seasonal, etc. Some are painkillers, others are multivitamins. How competitive and saturated the space is matters too.
I can only speak to the churn we faced for our B2B SaaS.
For context, this is how I would describe our “self-service” B2B SaaS:
It is pseudo-self service (You can sign up without talking to anyone. 2-week free trial without a credit card). But most “ideal” customers want to talk to someone to ensure the solution is a good fit (they spend 2-3 weeks shopping around with these demo calls)
It’s a “painkiller” solution for tech teams that don’t want to burden their dev teams
Pricing is fair for companies (no annual contracts, scales with usage; not priced for individuals)
When done right, our customers stick around with us “forever” (it becomes one of their lowest-cost acquisition channels)
Losing our minds
As we started growing with more customers, we faced a problem.
With our software, we had to help customers with their initial setup and answer a ton of questions upfront. This included sales and customer support. No matter how low pricing was, most customers would want a demo call upfront.
Because everyone’s implementation of our software is different, providing this type of support was (and still is) necessary. But it’s also a ton of work.
So when a customer would cancel 3 months in, after not seeing the results they wanted, that always hurt. Due to a number of different factors and expectations, 2-3 months seemed to be the timeframe in which these “non-ideal” customers would leave.
Growth was the #1 focus
Since starting GrowSurf, defeating churn was always a big priority. For years, it was even my #1 focus. If we could only become unburdened from the chains of churn, our growth could explode, so I thought.
Churn would take good months and turn them into shit. It hurt morale. It was incredibly exhausting. It contributed to burnout. It made efforts seem wasted.
It would make me question our SaaS business and if what we were doing was the right way of doing things.
Benchmarking a shit business
Were we just a shit business? With all the benchmarks out there for B2B SaaS sprinkled in with anecdotes from other founders, having a >10% churn rate was pretty bad.
For reference, if your monthly churn rate is 5%, you are losing 50% of your customers every year.
Anytime I would meet up with other B2B and SaaS founders, I’d ask them about churn and most would agree that >10% was not good.
2. Problems
House of cards
When we got to a point in our business where we could take a deeper breath and analyze the bigger picture, we could look a lot closer into the data. This was a metaphorical mirror on the wall that we had never looked at before. We could tell we were not beautiful, but it was time to see how ugly we truly were. This was something that we had been neglecting in favor of net growth and burning out fires in the early stage.
We set up internal tools and reports that allowed us to see the health and pulse of our customers. These were based on certain metrics that we would deem as health points.
When I had the chance to see the first sets of data over the following weeks, it confirmed my long-standing theory on why we had our churn rate: Customers were just not getting the results they needed to get a positive ROI.
However, as I dived deeper into the numbers, I became more distraught. Our business was a house of cards.
At that time, I remember identifying more than 50% of our customer base not getting what I would call adequate results. If I’m my own customer and I see these numbers, of course I’m going to cancel sooner than later.
Deep down, I knew we couldn’t go on like this. Something in our business had to change. It would not be easy and there would a lot of work ahead of us.
The problem is simple
The true problem was simple and straightforward: return on investment (ROI).
If our customers can’t make a return on their money, why would they ever stick around?
Solving this problem would prove more challenging than ever and take many years and effort.
3. Solutions
Things we did to solve churn
There are a ton of articles on reducing SaaS churn out there. Of course, we would follow the typical things you’re supposed to do and follow the age-old dogma and recommendations.
Although I’m listing below what we did as a simple bullet-point list, these efforts were a culmination of years of implementation and trial and error.
This included, but was not limited to the following:
Improved the product
Improved UX
Added features our customers wanted
Fixed issues, stabilized product/server
Added better onboarding
Onboarding calls with customers
In-app messaging (popups when user is using a specific feature, etc)
Improved customer support — more on this in the section below
Hired dedicated CSM
Hired dedicated support rep
Better customer education and support experience
Improved help center
Added more articles
Added more internal customer support tools to assist common customer issues
Improved sales process
Understanding our ICP and their needs more
Analyzing our own customers and seeing who had the best performing campaigns
Tailoring demos around our top common ICPS and their use-cases and what they were looking for
Improved customer success
Sending warm, personalized video messages to customers. Making our team accessible through names/faces
Explicitly reaching out to endangered customers to ensure their success
Following up on customers for feedback
Moved upstream in customers
Targeting companies/teams, instead of founders/individuals
Targeting companies that were established (e.g, employee count, founding year, funding amount)
Moved upstream in customer quality
Companies that have been around longer are better than new startups that have no customer base
Niching down further into a customer focus, further refining our ICP
Increased pricing (and upgraded product features) to what ICPs would expect
Moved upstream in use-case and value
Avoiding short-term use-cases like pre-launch waitlists
Focusing on solutions like establishing long-term customer acquisition channels for our customers
Making our value proposition more clear; updating messaging (e.g, marketing, website, sales messaging) to focus on our niche
Moved upstream in business models
Hiring a dedicated AE to handle inbound and outbound
Changing from a self-service model to a sales-led one (prospects must contact us to sign up)
Focused on competing with and providing better value than our Enterprise competitors, instead of self-service competitors
The 80-20 rule rings true here. While all the above items did help improve our SaaS and overall business to a certain extent, not all of them solved our root issue. Some changes we reverted back, some stayed.
Hiring to solve the problem
Hiring deserves its own section here, as adding more money/manpower did have its own effects. As we were making revenue, here were some of the biggest moves we made in an attempt to resolve the problem by throwing more money (via manpower) towards it:
Hiring software:
We subscribed to a variety of sales tools (e.g, webinars) and onboarding tools (education via Customer.io email drip campaigns; Bonjoro videos for warm welcomes). Webinars failed to gain traction, and the other implementations didn’t do much to dent churn. All-in-all, though they help, they didn’t fix the root problem.
Hiring people:
Hiring a dedicated, full-time customer success manager: This didn’t do much to dent the churn either. Long story short, even though a lot of effort was put in to explicit outreach of helping customers, that wasn’t the root problem of churn. So the churn rate did not noticeably become affected before/after having a dedicated CSM.
Hiring a dedicated customer support rep: A lot of our customers know our technical support rep by name, Sudi. That’s because he does amazing work. Hiring Sudi was one of the best decisions we ever made, as he handled technical support while we were busy wearing all the other hats of running the business. However, like having a dedicated CSM, this didn’t quite resolve the core churn problem.
Hiring a dedicated sales AE: We spent a year trying a sales-led model with an experienced sales guy who was full-time. He handled inbound and outbound, though his focus was to unlock outbound as a channel for us. We spent a long time onboarding, training, and passing the ins-and-outs of the business and customers. We were focused on the upstream market and competing with our Enterprise competitors, who all had sales-led organizations. Unfortunately, this model never really worked out for us and we reverted back to a pseudo self-service model.
What really decreased churn
Ultimately, If I’m reflecting on the major change(s) that really moved the needle in reducing churn, it was this: moving upstream in customer quality.
Here’s why:
We had spent many years refining ourselves in the low-ticket market. The Enterprise market was ripe and our product was more modern and battle-tested, and we had great customer case studies, top-notch reviews, and the social proof to back it up. We had more features, more APIs/SDKs/embedded solutions, and better product UX than our upstream competitors. Over hundreds of demo calls and insights from prospects doing their research, we learned where our product shined, and we were not far off, if not better, from the Enterprise’ offerings. We were finally ready to compete with our Enterprise competitors, as the differentiation came through the marketing and business model, not so much the product.
We knew ideal prospects’ timeframes, how they typically find us, and what they’re looking for. We were familiar with ideal customers and could tell what they looked like and how they sounded.
We increased pricing to target better customers. Better companies had pre-determined budgets. The quality of customer dramatically increased with higher pricing.
Better customer quality really meant these were good companies we would be working with. Companies that worked in teams and set up projects and KPIs and goals for each quarter. Companies that followed typical B2B SaaS sales cycles, where they were expecting to be courted by vendors and choosing the best solution for their needs.
The key factor contributing to our high churn rate was that many of our customers were early-stage businesses or those still building their user base. While they showed promise, they often hadn't yet reached the scale or maturity needed to fully benefit from our SaaS. We did see some exceptional growth stories among customers, but these were less common than we'd hoped.
4. Aftermath:
So was it all smooth sailing? No way Jose. Quite the opposite. And we ended up trading one problem for another.
The good
We did it: We finally did it. We reduced churn. We were able to achieve a 3-4% monthly churn rate.
Involuntary churn was also reduced: We get a lot less involuntary churn these days (e.g, customers not updating their expired credit card and thus getting cancelled automatically after many attempts). A lot of our current involuntary churn comes from older, legacy customers.
Accounting for startups: There are still many early-stage startups that would be good customers for us. We were able to solve this by making a Startups program where eligible companies could get 50% off their first year with some other usage bonuses. For startups that were seriously considering a solution like ours, they are able to get the benefit of testing the waters fully before plunging right in.
Better customers: With better customers, came better results. Support volume is much less, and the overall quality is just much better.
The bad
Although churn was reduced to an “acceptable” amount in the world of B2B SaaS, the tradeoff was the amount of new customers every month and our growth rate. But, there is still good news: new customers stick around much longer and churn for the right reasons. Compared to when we were priced at $99/mo, this is much more preferable, considering most customers, regardless of size or type, get the same amount of sales and support resources.
The ugly
We had peak ugliness happen when our rate of new customers slowed down, but our churn was staying the same. This was the transition period and it did take some time to stabilize. In the first image in this blog post, you’ll see there was a large spike of 20% churn. As customers exited, it was a challenging time for the business. But it was necessary, as these customers would have inevitably churned.
Summary
Ultimately, we cut our churn by looking at our internal data, being honest with ourselves, and trying many things that you’re supposed to do.
The one main thing that helped was deciding to focus on a better quality of customer.
There was certainly a tradeoff, which was in the form of becoming a calmer and steadier, albeit slower-growing, SaaS business. This means less overall customers, but also means less flurry of activity, onboarding, and calls that end up going to a churned dead-end. This is a positive in my book.
I write about SaaS, entrepreneurship, and business. Follow me on Twitter (@kevinyun) for more content like this.