Why Low Churn Rates are a Force Multiplier for Vertical SaaS Companies

When you have a vertical SaaS business, your churn rate is either a force multiplier for your business–or a growth killer. High churn for too long will permanently hobble your SaaS company when you sell in a tightly connected market.

Sure, when you are starting, churn will spike as you figure out who to sell to, what they want, and how to deliver it. But this has to be fixed, or you’ve got a big problem.

When you have a high churn for your price point, you are creating frustrated customers who will say bad things about you when you are not there.

Too many churned customers for too long creates a reputation problem that will slow down your business or kill it if you don’t fix it.

When you sell to just one industry, your message spreads between buyers in that market. They talk to each other at conferences, Facebook groups, and CEO meetups.

Word of mouth is often your primary customer acquisition channel.

Each customer you sell now has a multiplier effect on your customer acquisition success next year. It’s either positive and efficient–or negative and expensive.

Your prospects are talking to your current and previous customers. What do they say about your product?

  • Will they tell their peers you have a great product that’s worth the investment? “It’s great. Just get it.”
  • Or will they say, “We tried it, and it didn’t work. It wasn’t worth the money and time, so we canceled and did something else.”

Most buyers of industry-focused software solutions are waiting to hear what your first users will say about your product. The majority of your market is waiting for your early adopter customers to give a thumbs-up or down.

If you have a $300/month SaaS product with 300 customers in a specific industry, a 4% monthly churn is 12 customers a month and about 150 customers per year.

At that rate, it will take you just two years to create 300 pissed-off canceled customers. That’s as many negative customers as might say good things about your product right now. They are giving you negative referrals and filling up review sites with bad news.

It’s a leaky bucket in your SaaS business. This gets expensive fast.

You’re paying to acquire too many customers who don’t pay you back. And your marketing and sales conversion rates will be much lower, costing you more upfront.

High churn is terrible for cash now and a killer of the future value of your company.

If you’re in a vertical market or niche market where your buyers talk to each other, your churn needs to be much lower than average.

  1. Stop selling to customers who won’t succeed and stay long. 50% of your churn problem is who you sell to.
  2. Fix your product, sales, pricing, onboarding, and support problems fast before trying to get too many more customers.

Growing a valuable vertical SaaS business isn’t about speed or big funding.

It’s about having a high percentage of customers that love your product. Let the multiplier do its unstoppable work.


Get the weekly Practical Founders email and podcast update.

Share Practical Founders


Win the Startup Game Without VC Funding

Learn how all 75 founders on the Practical Founders Podcast created an average founder equity value of $50 million.