Learning 002: Focus on Churn if want to grow fast, and do it right now.

I’m blogging about my learnings founding and growing Circuit, my Route Optimizing SaaS startup.

6 Months ago, I’d never heard of churn, and 5 months ago I wouldn’t have been particularly interested in Circuit’s churn either, but now it’s the most important metric I track.

What is “Churn”?

Churn, or “Churn Rate”, is the amount of existing paying subscribers a business loses every month, measured as a percentage of your total customer base.

For example: Starting the month with 100 subscribers, and ending with 95 (ignoring any new customers) is a 5% churn rate.

Why’s it important?

Churn has a huge effect on both a subscription businesses ability to grow, and the maximum size it can reach. I can’t begin to stress the difference losing 2% of your active customers/month instead of 4% will have on your long term growth.

Here’s an example:

Imagine a Route Optimization App, like Circuit. Let’s say it’s revenue is growing at 35% per month, starting a £100. Over the course of the next 12 months, here’s it’s estimated growth at both 2% and 4% churn.

2% vs 4% Monthly Churn over 12 months.

Looking at the first 12 months, thing’s don’t look too bad. The difference between 2% and 4% churn is just a few £100 MRR¹.

2% vs 4% Monthly Churn over 36 months.

SaaS is compounding by nature however, so if we fast forward to the end of year 3, things are not looking great at all. We’re now seeing ~£1m in potential MRR lost.

Take action early

You need to take action on your churn rate now. Every extra £ of lost revenue to churn will compound over the entire life your company.

If you lose £1m in potential MRR to churn over the next 3 years, you’ll never get that back.

Not only that, even if you then fix the churn problem, the mechanics of SaaS will cause that lost revenue from the first 3 years to continue to compound, forever.

Takeaways

• Churn impacts your subscription company’s long-term potential in a huge way. Your entire company must work together to minimise this figure if you want to grow fast.
• Act on churn right now, any churned revenue will continue to compound forever.

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¹ MRR: Monthly Recurring Revenue