The best way to solve SaaS churn of small business customers is through a managed partner directory of experts. Here's how it works.
Updated May 1, 2024.
SMBs can be excellent customers for SaaS companies. They are easier clients to obtain than enterprises, and there are far more SMBs than major companies.
That customer profile and behavior sounds ideal, right?
Working with SMBs can be fantastic, but it comes with one major downside: churn.
Whether they focus on SMBs or sell to everyone from SMBs to enterprises, SaaS businesses have an SMB churn problem.
The benchmark churn rate for SMB customers of SaaS platforms is 3%-7% per month.
That is 36%-76% per year.
At the high end of SMB churn, you would have to replace most of your SMB customer base every year just to keep growth flat. It is no wonder that retention exhibits a more robust correlation with growth rate than expansion revenue. Churn isn’t just a leaky bucket–it’s a hole in the bottom of the boat that could sink your company.
However, the top SaaS companies achieve much higher retention rates for SMB customers than 24% per year. In this article, we’ll talk about why SMBs churn from SaaS platforms, and how you can minimize the revenue you lose to churn.
The problem of SMB churn has real costs. The median gross dollar churn per year for SaaS companies is 14%, according to the KBCM Technology Group Private Company SaaS study.
The churn rate is higher for the SMB segment, which could make costs staggeringly high.
There are a few unique characteristics to SMBs that increase the odds that these companies will churn.
SMBs are often less stable than major enterprises, and more likely to experience cash flow problems. In extreme cases, these issues put SMBs out of business, and they churn.
The volatility of SMBs is one of the hardest aspects of customer churn to address, but SaaS companies can still play a role in reducing churn. SMBs need their SaaS platforms to go beyond technical advice and become true strategic partners to help them achieve their business goals, (and stay in business).
SMB users are overwhelmed. Often, the end user is the only person in their department, or an owner/founder managing multiple functions at once. They do not have the platform knowledge of a specialist, and they have limited time to build their skills.
At the same time, as SaaS platforms continuously add new and innovative features, their products become more complex. The knowledge gap between SMB users’ understanding and the platform’s capabilities widens. The SMB user is forced to try to catch up with limited time, or to hire outside experts who might not be able to assist them adequately.
Compounding the issue, the SMB knowledge gap extends beyond technical implementation and use. SMBs also have to understand how to use SaaS platforms to achieve their business objectives. For example, without email marketing strategy experience, an SMB owner may not be able to use an email SaaS platform effectively.
With technical and strategic knowledge gaps, SMBs do not experience the full value of their SaaS platforms, which increases their churn risk.
Another contributor to SMB churn is lack of access to dedicated customer support resources on lower-tier plans.
This challenge compounds over time, in a vicious cycle we call the “LTV snowball”.
As the costs of hiring, training, and maintaining a customer success team rise, fewer accounts meet the customer lifetime value (LTV) threshold to justify access to a dedicated customer success manager. As a result, SaaS companies increase the threshold for customers to receive dedicated support resources.
An increasing share of customers lose access to support. These customers are more likely to be the same SMBs who already struggle with the knowledge gap between their in-house skills and the platform’s capabilities.
The customers who lose access to support don’t experience the full value of the platform and churn.
Lifetime value decreases.
The cycle begins again.
As we discussed, the SMB product knowledge gap is a major contributor to churn. Let’s dig in further here.
If 90% of your product features are only used by a small percent of your customers, it is a warning sign that many of your customers are only scratching the surface of what your product offers. If customers are not interacting with your product fully, they may incorrectly assume that it doesn’t meet their needs and churn.
Additionally, when users only engage with a fraction of your product’s features, they may perceive that the platform is not valuable, which affects their odds of remaining a customer and recommending other businesses to your platform.
Traditionally, SaaS companies solve product engagement problems by investing in customer success, self-serve support guides, and partner directories. However, each of these approaches has its limits:
However, there is an innovative new approach to managing churn that addresses these challenges. Let us introduce you to the Managed Expert Platform.
Imagine connecting your SMB customers with a vetted expert in your platform and their industry and business challenges who can show them how to use your platform. The expert can even implement improvements in the customers’ accounts to make sure they fully realize the platform’s benefits.
What if this offering had a better ROI than your in-house success team?
The Managed Expert Platform is here to bridge the knowledge gap between your platform and your SMB customers. Through the Expert Platform, a collective of highly vetted and trained freelancers and micro agencies deliver high-quality experiences for your customers.
They not only help SMBs understand how to use key features, but also provide the strategic, industry-specific advice to ensure that customers reach their goals.
The Managed Expert Platform follows a pay-per-use model, which reduces the costs of underutilization. For one flat rate, you invest in expert support, hiring, management, training, optimization, and quality assurance.
