Understanding Churn Metrics
Learn the metrics to gauge the health of your business.
Let's start by talking about KPI's. KPIs are metrics within your financials that help you understand if your business is growing or dying.
Here are some examples of KPIs:
For any SaaS business:
- MRR: Monthly recurring revenue is different than monthly revenue. Monthly recurring revenue is the amount of revenue you’re adding (or losing) that you expect to receive every month.
- User Churn: Churn measures the percentage of people who leave every month.
- ARPU: Average Revenue Per User is the number you try to raise once you've figured out your product/market fit. You can raise this number by increasing your prices, moving customers up pricing tiers and selling add-ons.
- LTV: Life-Time Customer Value, our personal advice is if this number is lower than $300 you haven't found product/market fit. The higher this number is the more paid advertising options you have.
- Net Revenue: Total of sales minus any discounts, coupons, refunds, bounced checks, etc.
- Number of Customers: How many customers do you have?
But you can also focus in on KPIs specific processes or initiatives.
For an email campaign:
- Number sent: How many emails did you send?
- Open rate: % of people that opened the email?
- Bounce rate: % of people the email bounced for, you want this number low as possible, meaning your emails are reaching their intended recipients.
- Click rate: % of people who clicked a link in the email. You want this number as high as possible, meaning recipients are engaging with your content.
- Conversion rate: % of people that opened the email, clicked and link and hit your goal. You want this to be as high as possible, meaning recipients reached your intended goal.
KPIs for the signup/onboarding process at LessChurn:
These are numbers we watch and we want to raise these numbers. We're not satisfied until all these numbers hit 100%
- Connection to gateway 59.0%
- Added a redirect url: 32.0%
- Added someone to the team: 19.0%
- Deployed to test environment: 12.0%
- Deployed to live environment 15.0%
KIPs for churning customers
Can you predict when a customer will leave? Maybe you could if you had KPIs for it. Here are some ideas:
- Downgraded plan Many users downgrade their plan to save money while their searching for something else to use.
- Drop in other KPIs. If you have KPIs for healthy customers, number of invoices or proposals sent, number of to-dos created or completed, etc., then a decrease in these KPIs might mean a customer is looking at competitors.
- Users who don’t log in frequently.
- Users who have a support ticket with a dissatisfying result.
- Users who have never used a particular feature. Maybe they are unaware that you have this feature, and she leaves looking for a competitor that has it.
KIPs for successful customers
These KPIs will vary from business to business, but generally it is some combination of:
- Modifying a certain setting(s) For example, in LessAccounting some KPIs are whether or not they've upload a logo or if they've invited a bookkeeper or accountant.
- Ongoing usage of certain features How many proposals or invoices created/sent this month.
- Not all users are the same Once you start tracking the data you will find that you have several types of "health customers." For example, We have a lot of users that don't use invoicing, just the accounting features. If we thought all of our users were the same then we'd wrongfully think that these users are not "healthy." I think you'll find that you have 5 to 10 healthy profiles. (There will surely be many more, but best to focus on the most common.) Also, remember that since businesses of different sizes use your app, their usage counts will be different. When constructing profiles it might help to be looking at ratios of usage instead of counts.
- Tools There are a lot of tools that claim to help you identify your healthy customer profiles. Most let you track "events" or "actions." Some charge huge fees to analyze your data. But we have yet to find one that has actually helped us. It should let you attach KPIs to users (which many do), but then run all the numbers and tell you what the patterns are. Sooner or later, we're going to build this. If you beat us to it, let me know!
What is MRR?
MRR is Monthly Recurring Revenue and it's more than just monthly revenue. Monthly Recurring Revenue is the amount of revenue you’re adding (or losing) that you expect to receive every month.