Let’s talk about B2C & B2B customer churn
- 05.31.2023
- Nathan Tufts-Brown
- 4 min read
Photo by Mantas Hesthaven
Churn, the act of customers leaving a subscription service. AKA, the product growth killer. It’s a problem that plagues every SaaS. BUT it isn’t a fatal problem if you understand your customer needs and design for their behavior. This article aims to highlight the differences and similarities between B2C and B2B churn and the lessons that can be learned from each business model.
1.B2C
B2C, “Business-to-consumer” churn often comes from a “too wide of a net” strategy. A customer acquisition approach that assumes a person with disposable income is a future customer.
The origin of most large B2C companies, be it SaaS, E-commerce and brick and mortar is they started small, targeting a small group. When netflix entered into the streaming space, it was with a few shows at first. They have obviously departed from that strategy with 129 original content titles being released in late 2021 alone.
The average voluntary churn rate for B2C SaaS business is 7.05%. A small but significant problem that plagues B2C is involuntary churn, with a rate of 1.07%. This is caused by failed payments due to incorrect information.
Design has a huge impact on b2c churn, especially user onboarding. If a poor design isn’t identified as the primary driver of b2c churn then vast amounts of money will be spent on sales and marketing to bring potential users to the product… only to see them leave. This creates a vicious cycle if not identified properly.
2.B2B
B2B, “Business -to-Business” churn can originate from a number of places; new competitors, pricing is too high or SaaS hasn’t adapted to updated expectations. The biggest driver is related to price and usability. If the organization is scaling and the SaaS now needs to be adopted by a new team and productivity is being stunted, businesses are going to go with the option that reduces friction.
B2B churn is on average 5%. There are rarely impulse purchases in the b2b model. No CEOs scrolling through their phone and “splurging” on a high priced accounting SaaS (not yet anyway).
Because B2B customers are usually won through relationships and selling to an organization’s needs, it is harder to win over these particular clients. This also gives them a unique power.
While the majority of B2C SaaS is an intensely competitive field (there are over 1500 dating apps/websites in the world right now), Niche B2B SaaS services can help target a specific problem for a business. Because they are the only ones who are doing it, their churn rate is lower.
3. A common enemy for B2C and B2B churn
Both business models churn potential share a vulnerability; not showing value in the right way.
For B2C customers, this value needs to be demonstrated in a matter of mere seconds. For B2B customers value needs to be demonstrated with deliverables, measurable milestones that were promised (or heavily hinted at) before purchase.
Demonstrating this value properly for each type of customer requires a key step; understanding your users (so they may become customers).
This is done through user segmentation. One of the most effective places to deploy user segmentation is during the user onboarding phase. This is especially helpful in b2c user onboarding, making the product feel customized to the user goals (and problems).
Identify your high value customers and you will give your product a higher chance of success.
4. How to get back customers who have left
Part of the reason that this article focuses on making churn-proof experiences is because it becomes exponentially harder and costly to woo back customers who have left. First things first, is it worth the effort to pursue customers who have departed? Well it depends.
Did you lose a high value customer?
How much of your customer base have you lost?
More importantly, have you identified internal reasons that may have led to a departure?
Why obsess about churn so much? Apart from the obvious fact that churn is detrimental to the immediate future of the company, it is cheaper to retain a user/customer than it is to acquire a new one.
5. Conclusion
Dealing with user churn is difficult but a natural part of any product cycle, regardless of the user base. The key to lowering churn is making sure that value is perceived in a way that resonates with your users. This requires a process of understanding your users and segmenting them appropriately. Churn isn’t a wholly negative experience; it can be a fantastic teacher, handing you the answers on how to improve your product experience.
