Deep dive: Cancellation rate in SaaS business models | Hacker News Reader

Deep dive: Cancellation rate in SaaS business models

blog.asmartbear.com

57 pointsdmitri19818 comments

If anybody wants years of insight into the SaaS business model, look at reseller web hosting.

People have been reselling web hosting for more than 10 years now and it is, at its core, an SaaS model in a highly competitive space. You have monthly recurring income from customers who subscribe. You have to maintain and improve your service constantly, and support is a big part of the business. There is overhead, there is a lot of work involved, and it's very stressful.

Check out WebHostingTalk.com and just read about the ups, downs, pit-falls, successes, and problems people have been having for a long time and you'll learn a thing or two about what it's like to capture and keep subscribers.

When it comes to SaaS, the thing is, people leave, they cancel, and you have to let them go. They know what's best for their business, so you can't dwell on cancellations.

The only way you survive in this recurring revenue world is if you are acquiring faster than you are losing customers. It's pretty basic math.

I used to try SO HARD to keep those customers who were walking away. I felt bad about it.

Things change.

Today, if someone is leaving, I help them get where they are going if I can. I am not an obstacle. I'm that friendly face you are always welcome to return to if you don't find greener pastures.

You know what? I get A LOT of people back as years go by.

I'd be interested to see the comparison between _enterprise_ SaaS and normal $39.95/month SaaS.

The churn on enterprise SaaS would presumably be incredibly low, because once a company invests in integration, workflows, training, etc. for a particular system, it's going to be very hard to switch.

Don't forget the long-term contracts, where an enterprise signs onto the software for five years in exchange for a discount. That's probably the most common justification for "Why can't we have better service?" that I've seen IRL.

Great point... our typical deal is a three-year contract.

My churn history, for what it's worth: http://i52.tinypic.com/2v3llr7.png

Bootstrapped b2b saas startup with one part time support guy, 2 technical founders and no one else, avg sub $80/month, 75% of revenue in 2011. Most customers are small business.

Most people seem to churn because they only want to use it for the 1 month free trial period.

What kind of customer research do you do with people that leave after the trial?

Also, many companies that I know don't count trials as part of "customers" so they don't impact churn (higher churn among people who have paid you in the past is a more urgent cause for alarm than increased amount of canceled trials)

One issue with the equation [Cancellation rate] = [product utility] + [service quality] + [acceptable price] is that it assumes the product continues to be relevant or useful to customer forever. This may not be true for all products. Point in case is A/B testing software. Many small customers decide one day that they need to optimize their landing page. They purchase a subscription and do a couple of A/B tests. They are happy with the product but they anyway have to cancel because the tool served its job and they no longer need it.

Product utility was there, service was good and price was also okay. It is just that the product need wasn't continuous.

In cases like that you may still be figuring out the business model. Unless you are selling to companies that maintain lots of websites, that may not really be a subscription service but rather more like a "rental."

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