👓 Churn - The Silent Killer

Poor retention - aka high churn - is often referred to as ‘the silent killer’.

And for good reason.

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Heads up.

You’ll find nothing new or revolutionary in this post.

In fact, what I’m going to talk about here is pretty basic.

But you will find a very important message about retention and churn here.

And it’s a message that, in my experience, not enough people understand the importance of.

Picture this.

You’re at the weekly growth metrics review and see monthly revenue churn of 15%.

But your go-to-market engine is repeatably bringing in $100K in recurring revenue every month.

That feels good!

If this is your first rodeo, you might not feel too alarmed.

But you really should be.

You won’t be feeling the same way a few months from now.

Because the impact of churn compounds over time.

To demonstrate this point, I’m going to refer to some visualisations I first learned about from David Skok (Matrix Partners). I got to know David during my time at CloudBees where he was an investor. He shares them in his article about SaaS Metrics - an essential read for any startup founder and product and growth leader.

So let’s look at that 15% monthly churn scenario on a graph:

By month 24, monthly recurring revenue has basically flatlined at ~$650K.

Your business has plateaued.

You’re no longer growing.

OUCH.

Customers are churning like lemmings jumping off a cliff.

If we get monthly churn down to 10%, you'll see that we’re in a better position, but still not great.

You’ve extended your time to flatline by ~12 months and raised the ceiling to nearly $1M in MRR.

But what if you could get monthly churn down to 2%?

That looks like a much more healthy situation with almost linear growth.

But the magic in B2B PLG really happens when you unlock net negative churn.

This is why Net Revenue Retention - NRR (or Net Dollar Retention - NDR - if you call it that) is such an important metric in assessing the health of a B2B SaaS business.

Strong SaaS businesses find ways (on average) to generate more revenue from each customer over time.

Snowflake: 135% (down from 174% in Q1 2022 - not even they were immune from the macro context).

Confluent: 130%

GitLab: 128%

UIPath: 121%

Datadog: 120%

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