Churn ARR

• By
• Chris Burgner

  Chris Burgner

  12+ years of experience, most recently as a Director of Finance at Intercom.

  

Churn is usually defined as the point in time when a customer cancels their last remaining subscription. Similar to Gross New ARR, the exact definition depends on where you draw the line on what constitutes a  “customer” for the purpose of reporting ARR. But it always involves a cancellation at some level.

Why it matters

We’ve discussed how your business’s growth will eventually transition from being driven by customer acquisition (Gross New) early on to being heavier on existing business (Expansion) as the company scales.

Keeping customers active is the biggest lever to speeding up this snowball effect. Companies with a “leaky bucket”, meaning a high percentage of customers quickly churn, must work twice as hard to acquire new customers to return to growth. Doing so is resource-intensive (and expensive), which is why investors and operators alike are so focused on Churn performance.

How to optimize it

Like Expansion and Contraction, tracking engagement metrics is critical to understanding the health of your customers and their likelihood of keeping an active subscription.

Investing in teams focused on Customer Support and Success goes a long way to addressing pain points that may lead to Churn down the line. Understanding where in the customer lifecycle Churn takes place can help you infer where help is needed.

Seeing a lot of customers become inactive within the first few months? This might be an issue with onboarding. Alternatively, if you’re seeing customers leave once they hit a certain spend threshold or level of usage, that may be a sign their needs are outgrowing your product and investment in additional, usually more sophisticated, features is needed.

Don’t wait for things to reach a point of no return before engaging with customers, and make sure you have the right amount of coverage on your teams to serve their needs and be responsive. Investments in Churn-save will likely return many multiples in the future.

Levers to pull

• Shore up key product gaps/issues
• Improve onboarding and activation
• Modify pricing and packaging