What is a good churn rate for B2B SaaS?

Q: What is a good churn rate for B2B SaaS?

B2B SaaS average monthly churn rate: SMB 3-5%, Mid-Market 1.5-3%, Enterprise 1-2%. Best-in-class: <1% monthly. Annual churn calculated with compounding (not 12×monthly). Revenue churn often lower than logo churn due to expansion. Source: Optifai Sales Ops Benchmark 2025 (N=939 companies, Q1-Q3 2025)

Key Findings

SMB Monthly Churn

3-5%

Higher churn, lower LTV

Mid-Market Churn

1.5-3%

Balanced retention

Enterprise Churn

1-2%

Best retention, highest LTV

Churn Rate Tiers

Best-in-Class<1%

World-class retention. Strong product-market fit, high switching costs, excellent customer success.

Good1-3%

Solid retention. Effective customer success, good product value, competitive pricing.

Acceptable3-5%

Room for improvement. Focus on onboarding, feature adoption, and proactive outreach.

High Risk>5%

Unsustainable. Indicates product-market fit issues, poor onboarding, or weak value delivery. Urgent action needed.

⚠️ Common Mistake: Annual Churn Calculation

❌ WRONG: Annual = Monthly × 12

Example: 2.5% monthly × 12 = 30% annual (INCORRECT)

✓ CORRECT: Use Compounding Formula

Annual Churn = (1 - (1 - Monthly Churn)^12) × 100

Example: 2.5% monthly = (1 - 0.975^12) × 100 = 26.6% annual

Key Insights

Segment matters: SMB SaaS (ACV <$10K) tolerates 3-5% monthly churn due to high volume and low CAC. Enterprise SaaS (ACV >$100K) needs <1% monthly to maintain unit economics.
Logo vs. Revenue churn: Revenue churn is often lower than logo churn due to expansion revenue from retained customers. Best-in-class companies achieve negative net revenue churn (NRR >100%).
Time-to-value impact: 70% of churn happens in first 90 days. Companies with strong onboarding (time-to-first-value <7 days) see 50% lower churn rates.
Annual contract advantage: Annual contracts reduce monthly churn visibility but typically show 30-40% lower churn than month-to-month plans over the same period.
Expansion > Retention: Companies growing 100%+ YoY focus on expansion revenue (upsells, cross-sells) rather than just minimizing churn. Target: Net Revenue Retention ≥ 110%.

Churn Reduction Strategies

Onboarding excellence: Reduce time-to-first-value to <7 days (currently 14-day average)
Health score monitoring: Track product usage, feature adoption, and engagement weekly
Proactive outreach: Customer success check-ins at Days 7, 30, 60, 90
Value realization: Quarterly business reviews showing ROI and outcomes
Annual contracts: Offer 15-20% discount for annual vs. monthly to lock in retention