Fun companies with excited sales teams ring bells and crash gongs when they land new business. It’s motivating and exciting to win, but what happens at your company when you lose a customer?
It’s called “churn” (also “churn rate” and “attrition rate”) and it’s the number or percentage of customers that you lose over a period of time. Since it essentially means your company failed at some point, it’s not often in conversation.
If you’re worried that this is a downer post, I’m with you. Most days I’m as positive as a Wide Receiver in the End Zone, but hear me out because getting control of churn is important.
Holey Bucket Batman
I’ve found that a great analogy for explaining churn and it’s importance to your team is that of a bucket with holes in it. Put yourself in the Sahara Desert for added drama. No matter how quickly you can add water to your bucket you’ll be wasting it on the ground. If rain is rare, you’re probably going to die. If you have a firehose feeding your bucket, at the very least your water bill will be much higher than it needs to be.
Metaphor aside, your 30% growth could be eroded to a net 10% or worse if your leaking isn’t controlled. Cory von Wallenstein wrote a detailed and graphical example of how Dyn, Inc fought churn and found record growth.
We recently wrote about our research into public company records looking to see who was tracking and focused on reducing churn. The results were disappointing.
Very few public companies utilizing a subscription model reported on churn. The few that did used so large a variety of terms, time frames and calculation methods that comparing often required several extra steps. Companies often flipped the term on its axis and labeled it ‘retention rate.’
Semantics aside, most reporting companies were battling churn rates in the single digits. We can only imagine how poor the rates are for companies that aren’t even tracking churn or won’t report it.
Venture Capital Churnistas
While much of the business world deludes itself, venture capital firms have been asking about churn rates for years. It’s almost always a part of their initial conversations and so too should be a part of yours.
Rand Fishkin, CEO of SEOmoz, recently gave a very transparent look at a failed attempt at landing investors. In an initial email reply to a VC enquiry, Rand described his company with the following excerpt: “...grown to ~7,500 paying subscribers, dropped monthly customer churn from ~14% to ~8%...”
The only way to accurately talk about customers growth is to follow up with churn.
Feel the Churn
At Apptegic we routinely do push-ups in between rounds of battling churn for our customers. It’s a passion. Our customer engagement metrics let our customers:
- Understand the differences between their customers who renewed and their customers who churned.
- Measure and respond to the actions of customers within their application and with their business.
- Improve their product to make it more useful and usable.
These are three of the best ways we know to beat churn. We even use them on ourselves. Check out what we are doing in a quick Evergage demo.