Retention
One point of churn, three years later.
Churn is quiet. You lose a few customers a month, you sign a few more, and the top line still goes up. The damage doesn't show up until year three, by which time it's the shape of the whole business.
Build a subscription plan with the customers, price and retention below already in, or see what one point costs first.
Here's why. Every customer you keep is still there next month, paying again, on top of whoever you signed that month. Retention compounds, and it compounds on the base you already built. So a single point of it, held for thirty six months, moves a number far bigger than a point.
Put your own figures in. The middle column is the same business with retention one point lower and nothing else changed.
Your numbers
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| Where you land | Your rate | One point lower | Difference |
|---|---|---|---|
| Customers, month 12 | - | - | - |
| Revenue, month 12 | - | - | - |
| Customers, month 24 | - | - | - |
| Revenue, month 24 | - | - | - |
| Customers, month 36 | - | - | - |
| Revenue, month 36 | - | - | - |
What the table is doing
Each month, the customers you still have are the ones you kept from last month plus the ones you just signed. Drop the rate you keep by one point and two things happen at once. You lose a little more this month, and you lose it off a base that was already smaller for the same reason last month.
That's compounding, and it works against you exactly as well as it works for you. The two columns start at the same place. They separate slowly, and then they don't.
What the full model adds
- Retention is set by quarter rather than once, so a product that gets stickier as it matures can say so.
- New customers can come from an advertising budget divided by a cost per acquisition, which is usually how the number really gets decided.
- Customers who prepay for a year change your cash before they change your revenue. The gap between the two sits on the balance sheet as deferred revenue.
- The revenue above arrives on an income statement with the cost of serving those customers underneath it. A cash flow page says when the money actually lands.
Building the model is free. Saving it to your account, the Excel workbook and comparing two retention cases side by side are on a paid plan. The pricing page lists what comes with each one.