Monday resolution: Do you know your churn rate? Do you track it?

Regular readers will know I am a big fan of The Lean Startup, a guide to nimble innovation for large and small businesses. This weekend I’ve been re-reading it, and here’s what I’m going to do differently on Monday as a result.

The section that really struck me this time was about identifying your ‘engine of growth’. The book argues there are three potential engines of growth:

1. Sticky growth: This is when your customers repeatedly buy something from you — like a magazine subscription, or a Coke. Your business’s rate of growth is determined by how fast you’re bringing in new customers and losing old ones (the latter your ‘churn rate’).

2. Viral growth: This occurs when your existing customers bring in new customers as a side effect of using your product. Facebook is a famous example. Your rate of viral growth is determined by how many new customers the average existing customer brings in. This one can produce dramatic growth, but is hard to pull off.

3. Paid growth: This occurs when you buy new customers — through paid advertising, for example. Your business’s rate of growth depends upon the difference between how much it costs to acquire each customer, versus your profit on each one. (And, pragmatically, on how much cash you have to invest.)

Most medium-sized businesses like mine, with a suite of products and both B2B and B2C customers, have some combination of the three engines of growth. For example, my business has the first and third.

It’s important to understand which engine of growth you’re using for each part of your business, because otherwise you can’t begin to track progress. You can only truly track your progress at the level of each engine, not overall. Overall is too general. Overall doesn’t tell you what to do.

Here are some examples: If you don’t know what your churn rate is, how do you know whether your ‘sticky’ approach is working? How do you know whether you should be doubling investment in that area of the business or launching a turnaround? How do you make sure you notice when growth on one engine slows down and you need to kick start it elsewhere?

And here’s what I realised yesterday: I have no idea whether our sticky approach is working. I know the rate at which acquire customers — it’s one of the metrics the leadership team looks at every Monday — but I have no idea about the crucial other half of the coin, the churn rate.

So that’s my Monday resolution: get the churn rate added to our dashboard, track it weekly or monthly, and start having evidence-based conversations about all of our engines of growth.

Advertisements
This entry was posted in Management and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s