Churn Rates! And More Math
Clement Vouillon tackles four benchmarks around churn rates from SAAS companies. Given there are companies of all shapes and sizes, it is not surprising that numbers are all over the place and conclusions are hard to come by. On benchmark has average annual customer churn at 32%. Another at 8%. But Vouillon does try to group by size of customer base so it is helpful. So check it out and try to make sense of your own rates in the context of over 1,000 respondents to the benchmarks.
Now who is silly enough to go after Amazon.com? Not us, says Jet.com!
An quick but interesting video about Jet.com, which was trying to be the Costco of the Internet, complete with a $50 annual membership fee. And while that membership fee has helped Costco’s retention considerably, Jet.com decided to jettison it in favor of their unique pricing model. Of course, Amazon.com has its own membership called Prime. But really, tough job Jet.com; best of luck.
Does doing good mean your business will do well?
You may have heard last year that Gravity Payments, a credit-card processing company, will pay all its employees at least $70,000. After a bumpy start, the company says that revenue is growing 2x the rate before their announcement and that customer retention is up. I’d imagine it would be hard to make the connection between the salary changes and better financial performance, but it is an interesting data point.
Ugh. Your Math is Wrong.
If you calculate Customer Lifetime Value (LTV), then you know there is a simple formula, which is 1 divided by your monthly churn. But this author says a few things get in the way of the simple calculation. Your churn rate is unlikely to stay stable given competition. There’s not factoring in cost of capital and not including cost of goods. While these are fair points, I say BAH! Don’t let a perfect number get in the way of a working number! If you need to calculate the expected rate of return from your investors in order to get to a proper LTV, then we will get stuck doing nothing.
Postmortem on Homejoy – lessons for us
Homejoy is a failed company that was able to get lots of new customers. But unable to keep them. This is a well-written post-mortem that talks about their ups and downs. From one employee: “The key problem is that we weren’t making enough money on our customers. We were spending a lot of money to acquire them, but not really retaining them.”
And as a bonus, one of the co-founders tried to resurrect HomeJoy as Fly Maids but mimicking (copying) a different competitor. Very very odd.