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Teams > Individuals in SaaS businesses

Teams > Individuals in SaaS businesses

SaaS companies make disproportionately more money with Team plans:

  1. Deal Sizes are bigger
  2. Retention is so much better. Once a team is collaborating in a product, no single user can easily make the decision to leave
  3. Seat Expansion. Successful Team products have “net negative churn,” meaning that expansion from retained accounts exceeds revenue lost from churned accounts.

Individual plans are the definition of a Leaky Bucket, with usual yearly churn rates of 50%. The Individual plan makes sense for enabling sharing and collaboration as soon as you can. But Teams are the ultimate destination.

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MORE IDEAS FROM Individuals or Teams: Who’s the Better Customer for SaaS Products?

B2C SaaS is limited to Individuals plans. The ability to offer Team plans is a major advantage of B2B SaaS. 

  • With only ~50% per year retention, these B2C SaaS businesses are effectively an arbitrage on marketing CAC (customer acquisition cost). There’s no long-term business. 
  • Netflix and Peloton are the exception as they have unique retention strategies.
  • Individual plans are a good business only when retention is unusually high (e.g. churn under 2% per month)

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Total contracted annual recurring revenue is the single best metric for the health of a business. It encapsulates new logo growth, expansion, and churn in a single number. Shows the money that comes in every year for the life of a subscription (or contract).

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Defined as the percentage of customers that cancel their subscriptions in any given time period, churn rate is an essential metric that can make, or break, the success of your SaaS business.  

That's why it's so critical to master churn analysis. No SaaS company can hang on to all its customers forever. But by understanding the nuances of why your customers churn, you can find more effective ways to reduce it.

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Analysing Churn: A comprehensive Study

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When startups talk about percentage churn(say 5 percent) they ignore too many variables:

Does this include users who signed up during this month, or only lost customers from the previous month?

What is the revenue churn vs user churn? 5% is okay if it’s all free users you’re losing, but what if that 5% happened to be all your premium customers or 50% of your revenue?

What is your activity churn? How many users became inactive this month? This is your leading indicator of future churn, and usually the most actionable insight.

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