How are we doing? This is a question startup founders ask themselves multiple times a week. It’s not just the competition against the incumbents and the large tech platforms that founders has to worry about, but most importantly is the company’s performance and product market fit.
Understanding the benchmarks on conversion, retention, and churn for your business is therefore critical. They encompass the effectiveness of marketing (the startup’s ability to reach and resonate with target customers) and stickiness (the product’s ability to deliver value to customers over time). I previously wrote about startup benchmarks in the context of funding readiness, so it was time to give it a re-fresh.
Let’s get the definitions straight:
- Conversion: The percentage of potential customers who complete a desired action, such as signing up for a trial, making a purchase, or subscribing to a service. In digital marketing, this is typically measured by the conversion rate, which is the number of conversions divided by the number of total visitors or leads. In SaaS in can be the conversion from trial to paying customer, and in consumer subscription it can be the conversion from download to subscriber.
- Retention: The percentage of customers who continue to use a product or service after a certain period of time, typically measured over weeks, months, or years. A high retention rate indicates that customers find the product or service valuable and are likely to continue using it in the future.
- Churn: The percentage of customers who stop using a product or service after a certain period of time, typically measured over weeks, months, or years. A high churn rate indicates that customers are leaving the product or service, which can be an indication that they are dissatisfied with it or that a competitor is providing a better alternative.
Unlike 2021, when money was cheap and plentiful, the mantra for startups is no longer blitzscaling and growth at all costs. In a contracted venture capital environment, where external funding is more difficult to raise, founders know that they need to make due with less, and extend the runway further.
Whether you are a B2B SaaS company or a B2C mobile app, knowing how your business stacks up against industry averages can help you make informed decisions and drive growth. In this post, we’ll take a closer look at the benchmarks on conversion, retention and churn for the key business models.
It’s worth noting that these benchmarks are based on general industry averages and can vary widely depending on the specific business and other factors such as target market, pricing, and competition. The benchmarks are based on the US market.
The money shot: benchmarks on conversion, retention, and churn for key online business models
|Business Model||Conversion Rate||Retention Rate||Churn Rate||Seed Stage||Series A||Series B|
|B2B SaaS||7% (average)||95% (average)||5% (average)||5-10%||15-20%||25-30%|
|B2C Mobile||2% (average)||70-75% (within first 90 days)||25-30% (within first 90 days)||3-5%||8-10%||15-20%|
|B2C Subscription||7.3% (average)||92-94% (average)||6-8% (average)||7-10%||15-20%||25-30%|
|E-commerce||1-3% (average)||40-60% (average)||40-60% (average)||2-4%||5-8%||10-15%|
|Marketplace||1-2% (average)||20-40% (average)||60-80% (average)||1-2%||2-4%||5-10%|
|On-demand Services||3-5% (average)||30-50% (average)||50-70% (average)||5-8%||10-15%||20-25%|
The benchmarks were generated by ChatGPT (it’s an amazing tool) and are mainly based on companies in the United States. The sources for the data include studies by HubSpot, Recurly, MarketingSherpa and more. I cross referenced some of the benchmarks with other known sources. For example, in B2B SaaS conversion, OpenView Partners 2022 benchmark report found that the average conversion rate for B2B SaaS businesses was 7.3% based on a sample of over 300 SaaS companies. You can get a downloadable version here.
In consumer subscription on the other hand, one of the big challenges is retention. Some studies suggest that the best consumer subscription companies are able to retain 65% of their revenue after one year. Retention over 50% is considered top quartile. Lenny Rachitsky’s post ‘what is good retention‘ is a couple of years old but goes deeper into consumer subscription benchmarks. I also previously wrote about the rise of consumer subscription as well as the ‘consumerisation of enterprise software‘ on VC Cafe, and I recommend Ben Futoriansky’s post with additional benchmarks.
Another factor to consider when it comes to achieving these metrics is the cost of acquisition, or CAC. I decided not to include them because they can be highly subjective depending on the market and business model and it would create unnecessary confusion. Hope you find this helpful.