# What Is Churn & How To Reduce It In Your Startup

Channel: Rob Walling
Video: https://www.youtube.com/watch?v=P31zfASNNLY
Duration: 13 min
Language: English
Words: 2847
Transcript page: https://viewrankai.com/tools/youtube-transcript/P31zfASNNLY

---

[0:00] in this video i'm going to define churn and talk about how to reduce it in your startup i'm going to cover the why the what the when and how so you can not only understand it but also reduce it if you stick around to the end of the episode i'll share a video case study of how i reduced churn in my own startup by finding product market fit i'm rob walling a startup founder with multiple exits author of three books about building startups an investor in more than 100 companies as i mentioned at the top i'm going to cover four areas of churn and we're going to start with the

[0:27] why really the question is why learn about churn why is it important to know your churn and to do that i have to back up and define it right a basic definition of churn is the number or the percentage of customers that you lose each month or the percentage of revenue that you lose each month depending on how we define it this is usually calculated monthly and the reason that knowing your churn is important is because churn is the death of sas if your churn is too high it is virtually impossible to grow and you will plateau so when most sas companies anything higher than like five

[1:00] percent a month is not great it depends if you're really going after consumers or you have a low priced product you can be in that five to seven percent range but consider like nine percent churn that essentially means that you have to replace your entire customer base every year it's massive it's a huge amount of effort to replace customers after you spend all the time finding them getting them to your website convincing them to buy nurturing them and then providing the support and then if they churn you lose that revenue stream now that we've covered the why let's look at the what what is churn i'm

[1:33] going to give you essentially two definitions of the most common types of churn that we look at in sas by far the most important is revenue churn revenue churn is the percentage of your monthly recurring revenue that you lose in a given month or if you're looking annually which most bootstrapped and mostly bootstrap sas companies do not but if you're looking annually then you know you could calculate it that way too and in the house section we'll look at exactly how to calculate it but realize that the percentage of mrr that you lose in a given month is your gross revenue churn and then there's something called

[2:02] customer churning you might hear it called logo churn and this is the percentage of customers that you lose in a given month you might ask which of these is more important and you may have already heard me say revenue churn is more important because if you have 10 customers and one is paying you a thousand dollars and nine are paying you ten dollars a month if one customer cancels that's ten percent customer churn but if it's that first customer paying you a thousand dollars it's almost you know it's 90 something percent of your revenue so you really want to look at revenue because your customer count is a lot less

[2:33] important than your actual mrr one last thing on definitions realize that the numbers that i just indicated they are gross churn right gross revenue term gross customer churn but there is a way to have negative churn in your business and that is when you have expansion revenue that's when someone is on a pricing plan and if they add more seats or they add more subscribers they get bumped up to a higher pricing plan and so that same customer is now paying you more money that's called expansion revenue because it's revenue you get from someone's usage of your tool expanding and expansion revenue is essentially negative churn if you think

[3:05] about it instead of losing revenue from your customers you are actually gaining it from the existing customers and if you get enough expansion revenue you can actually have net negative churn which is where your expansion revenue outweighs your gross revenue churn it's an incredible golden ticket i call it the cheat code of sas because when you have net negative churn it means that you can add zero customers in a given month and your business still expands it still grows and a business like that is just an incredible flywheel of growth next let's talk about when when should you look at churn always kind of i mean

[3:39] honestly you should be looking at churn from the day that you start your sas company the hard part is in the early days when you have three customers and one churns you have 33 churn the numbers don't actually mean that much so it doesn't start making sense until you have 50 customers or 100 customers to really start looking at churn but the idea is that before you have product market fit you can have really high churn and the normal tactics that we might use to counter churn that we're going to look at later in the house section those don't work because the problem is you haven't built something

[4:06] people want so before product market fit your churn can be all over the place and can be extremely high and really usually the core cause is you just haven't built something people want and in terms of when to look at churn when i've run my sas companies i've looked at churn on usually about a weekly basis sometimes a daily basis i know some founders only look at it every month and i think if your business is more mature and more stable that's okay but especially in the early days you really do need to be on top of this because you need to see if particular cohorts are churning and

[4:33] we'll look at that a little later about segmenting churn but i think churn should be calculated on an ongoing basis in real time that should always be done whether you're using a third-party provider that is on your your payment provider account calculating that churn or you have a custom dashboard you should be able to look up your trend at any time without having to calculate it and now let's dig into the meat of it the how how to actually calculate churn and then how to improve it if you're having trouble with it so the way to calculate revenue churn is to take the total mrr that canceled this month so if

[5:05] you lost 500 in total mrr this month to churn and you divide that by the starting mrr amount so if you had ten thousand dollars in mrr at the beginning of the month and you had five hundred dollars and canceled mrr during the month you have five percent gross revenue churn and similarly you can calculate customer churn by taking the number of customers who cancel in a given month and divide that by the number of customers you had at the beginning of the month again that is a much less important number to me personally but it is something that a lot of tools calculate and you can keep

[5:39] an eye on it and if you want to have some nerd alert fun segment your churn by a few different areas segment by pricing tier segment by customer type and segment by cohort or by age of customer and look at those look at how different they are almost always segmenting by pricing tier you'll see the people who pay the least amount of money churn the most and the fun part of doing customer type and the age you know the cohort of the customer is you can really get an idea of how long people typically stick around and if you had a certain batch that came from let's

[6:09] say a bunch of ads you ran you can see if the churn is higher or lower or you can see if certain industries really get more value out of your tool than others now we're going to dive into how to reduce churn of course there are a lot of ways to do it and we do have to separate it to before product market fit and after and product market fit is not a binary but it is a spectrum and once you have a decent amount of product market fit there are some tactics that you can implement that can help you reduce it but before product market fit

[6:34] i'm gonna be honest this is one of the hardest problems in entrepreneurship if churn is high and you're early it's very likely because you haven't built something people want so you need to go do that the hard part is figuring out how to do that there is no blueprint right there is no book there are some loose frameworks like customer development which say talk to your customers and build what they need but that isn't as easy as it sounds and frankly it's not often i see the same path to product market fit done the same way twice even by the same founder it's always this journey that you have to

[7:06] wander and certainly talking to your customers is one way but you also have to have a vision for what you're building and you also have to try not to be too clever and try to build a new category unless you have 10 million dollars of venture funding in the bank account and you have years that you want to invest into it so getting to product market fit is where i see most sas startups fail and often it's a longer road than you want it to be and there is no exact blueprint as i've already said but for a video case study of how i did exactly that with the last startup i did

[7:32] it was called drip stick around to the end of this episode and i will mention where that is so now let's move on to reducing churn if you have product market fit meaning that a group of customers gets a lot of value out of your product and you're finding you know some new customers on somewhat regular basis so then it's what we call blocking and tackling right it's getting down and reading support tickets and looking at exit surveys for the signs of why people are churning it's determining why are they leaving interviewing customers is another good way right for deeper information usually churn falls into a few

[8:03] categories alright so there's fixable turn and there's unfixable churn so fixable churn includes things like they never got set up or you're lacking a feature or key features they need your pricing is too high or your product is frustrating to use maybe your ux is crappy you're having performance issues or lastly maybe it's that they don't see the value this is related to pricing but it can be different you know even if you were a dollar a month some folks just don't see value in an app anymore that they signed up for so those were the fixable types and i'll go back through them now and talk through briefly how i

[8:33] would approach fixing each of those for the unfixable they're unfixable there isn't an easy way to get around them this is internal company politics some companies also go out of business that's another way that they churn and there again there's not much to be done about that and other times companies cancel because they just no longer need the tool if they were doing a bunch of social media marketing and you're a social media posting tool and then they decide we're not going to do social media anymore they just don't need your tool anymore and there's no easy way to fix that so now let's briefly walk

[8:59] through the fixable churn causes and talk about briefly how i would approach them so the first is they never got set up and so what would i do there well i'd be looking do i have in-app onboarding that helps walk them through do i have an email sequence that welcomes them and shows them the steps to get on board do i need to be a customer success rep or hire one to reach out proactively to get people on board the second fixable reason is lacking a feature or features i think this one's pretty obvious if that feature is within your roadmap or within your vision of where the product should

[9:29] go and you're losing a lot of people to it they're canceling you should probably build that feature or features now sometimes you get a one-off cancellation and they want some completely random feature that you're never gonna build and that's okay you're just not gonna fix that type of churn in the future sometimes someone churns and says your price is too high this is a tough one because i think most startups are probably underpriced and you're always going to get someone giving you negative feedback about your price if no one's complaining about your price you're probably underpriced but if you start losing a lot of customers to a

[9:58] competitor that has come up and has built the same feature set and they are underpriced and they really are eating your lunch yeah then maybe i'd consider well can we add more value do we need to lower our prices you know there are times it's pretty rare most of the time someone complaining about price is kind of a one-off or maybe they're not your best customer that's the other thing to look at is if a bunch of your customers cancel because the price but a bunch don't and they are different industries or you know somehow they have different budgets go after those customers that aren't complaining about your price the

[10:26] next reason is that you're if your app is frustrating to use because it has bad ux or it's slow or you got hacked it's under performance this one is obvious how to fix it but it's it can be hard to fix right you need to get some good engineers and designers and improve the app performance again easier said than done but if you're losing people over it then this should be something that you prioritize on your roadmap and lastly people who are canceling because they don't see the value of your product so this could be related to pricing but also what if you if you're charging a

[10:52] hundred dollars and then someone's gonna cancel and you say well even at five dollars is it worth it and you know if they just don't see the value it's not that they're not doing social media posting anymore but maybe they don't need the features you've built they just they figured out you know twitter built tweet scheduling into it and so now that's just it's just not as valuable right there are things like this that i i think are hard to fix but you can certainly look at are there additional features going back up to the the bullet above are there additional features that we can build that do make this product

[11:22] more valuable for that customer or that customer type in just a second i'm going to tell you about a video case study of how i reduce churn with my own startup but before that i want to tell you about the podcast i host called startups for the rest of us and every week for the past 12 years i've shipped a new episode we're on episode 615 and we're talking about all kinds of stuff related to sas to building to growing to starting it's very much in line with this youtube channel and i hope you check it out in spotify apple podcast google podcast or any place greater podcasts are served so

[11:53] if you want to check out the video case study i've referenced of how i reduced churn with my startup drip before product market fit because we had high churn we didn't have product market fit we figured out what to build so that we had a product that people loved people really wanted and were willing to pay for and that's in a video on this channel called an inside story of self-funded sas growth it's from microcomp 2015 and i hope you check it out hope you enjoyed this video if you did it'd be amazing if you'd hit the like button subscribe to the channel and i'll see you in the next one

[12:24] [Music] uh [Music]

---

About this transcript
Read from YouTube's own caption track and laid out by ViewRank AI (https://viewrankai.com).
ViewRank AI finds the videos already beating a creator's own average on Instagram, TikTok and YouTube Shorts, transcribes them from the audio itself in more than 60 languages, and turns what worked into new ideas and scripts.
Free transcript tools, no account needed: https://viewrankai.com/tools
How to read any video this way: https://viewrankai.com/llms.txt