The Real Meaning of "Churn"
“Customer retention rates ultimately determine whether your business is growing profitably or not.” - Dan Burkhart, Recurly CEO, November 2011
Here at Recurly, we do all we can to combat churn among your customers. After all, the typical Recurly customer saves more by recovering revenue - which contributes strongly to reducing churn - than the cost of their Recurly subscription.
But the reasons for churn go well beyond subscription billing; churn can affect the entire course of your business. That’s because churn is a neutral-sounding word for something awful: losing customers. Usually, a lot of them. Month after month after month.
People in SaaS businesses seem to find it easy to say things like, “Churn was 5% last month.” Yet no one would be happy saying, “5% of our customers left us last month.” Of course, the two sentences mean exactly the same thing.
If you have a churn rate of 5% per month, you lose nearly half of your existing customers in a single year. The effort and expense that went into acquiring, training, provisioning, and supporting those customers are all lost.
Worse, your former customers are likely to say bad things about you, hurting the flow of recommendations, referrals, and “buzz” which every growing business needs. According to Bessemer Venture Partners, you want a churn rate “in the 5-7% range ANNUALLY” (emphasis in the original article). That’s about 0.5% per month.
At a low rate of churn, customers “stick”, and word of mouth is likely to be positive. The same article cites a group of high-achieving startups with average annual churn rates of 10% per year, which is just 1% per month. If churn is not taken seriously enough in your company, try the following: instead of saying “churn” every time, use phrases like “losing customers”, “loss of customers”, or even “customers firing us”. You’ll get a lot more attention – and a lot more action. We’ll get into more depth about churn in a few near-future blog posts. In the meantime, check out Recurly resources on churn:
The Recurly Advantage. Recurly CTO Isaac Hall describes how Recurly’s service is designed to reduce churn.
Staying on Top of Key Metrics. Customer support manager Rachel Quick explains how Recurly metrics can help you reduce churn and meet your other business goals.
A Better Way to Calculate Your Churn Rate. Analyst Devin Brady shares a more accurate way of measuring churn.
Additional Integrations. Recurly’s integrators provide tools for measuring and further reducing churn.
Understanding Key Subscription and SaaS Metrics. (Name and email address required.) A Recurly guide to cutting churn and improving other key business metrics.
In a follow-on blog post, we'll give an example of the costs that churn can inflict on a business and point to solid advice for minimizing churn.
Do you have your own churn-related resources? Questions? Concerns? Share them in the Comments below - or send directly to the author at firstname.lastname@example.org.