Early on in a startup, we look for unaffiliated, passionate, paying customers. Customers who are both passionate and paying tend to stay longer, spend more, and refer more customers to your business. The opposite of that is when customers churn. Here are some thoughts on why churn is so important.

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Health of the value proposition‍

As you are looking to find product-market fit, you want to make sure you are delivering a compelling value proposition to customers. Churn is a way to help you see if you are delivering on that value proposition. If all your customers pay and don’t churn, you probably have a great value (and could even consider raising prices). If you are churning many customers, there is likely something wrong with the price/value equation that you need to explore deeper.

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Economic benefit

Acquiring new customers costs time and money. It is usually cheaper to keep the same revenue by retaining an existing customer. There are many metrics you can track in terms of attrition, net dollar/logo retention, etc. that help you see the impact to your business. In a simple exercise, if you had $2M in revenue but 25% churn, even if you grew your business 25%, that would just net you to approximately the same $2M in revenue.

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Good/Bad churn

Churn can be bad if you are losing key customers that fit your ideal customer profile (ICP). However, early on there may be some customers where churn is a good thing. They might not be in your ICP, they might be too demanding for additional features that are specific to them, they could be taking up too many customer support hours, etc. Don’t be afraid to fire early customers that are not the right fit for your business.

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Churn can be a great indicator of the health of your business and your ability to deliver value to your customers. Always pay attention to churn, but know the importance of the specific customers that are churning. There are lots of things you can do to dive deeper into predicting churn, proactively addressing churn, and helping your customers prove the ROI of your solution.

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