You can also check out this video of Caelen at BizCamp Dublin and his write up of the first half of his presentation on online business and revenue models.
On September 18, 2009,
in Conferences, Start ups,
by Caelen King
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Well done, looks very interesting. What time are you on tomorrow?
11.30
Nice work. Not sure about 20% churn equating to 100% satisfaction though. Eg: utility service such as online backup or payment processing providers will have a different profile to dating websites.
I like thinking of it in terms of ‘average customer lifetime’. Everyone dies but you can work on extending the average lifetime.
Hi James
Thanks for stopping by and you raise exactly one of the issues that I want to talk about today. The problem with slides is they only hint to the content. There will of course be exceptions to my 20 % rule and natural variations between industries. However if we look at mature businesses in competitive environments it is rare to get to a sub 20% churn rate. This is because even if you are in payment processing you competitors are actively marketing and selling into your customer base.
An example that we can all relate to is the mobile telecoms business. In general this industry has about a 30-40% annual churn rate. Many of the customer that move do not go because of a lack of satisfaction (or at least they don’t have the expectation that the competitor is going to be any better). They move because of an offer of a phone that they want is being given to them or similar.
shame you not going to be here and we could discuss it in the pub
Hey Caelen -
I think the relevant question for someone considering a subscription model is, “would it apply to my customer base?”. Also, the payment mechanism has a big impact on churn. http://www.backmeup.ie bills customers monthly. They also take payment by direct debit using sentenial.com. It works well in this case because backing up is something you ‘have’ to do. Its also a commodity service which cuts two ways. On the one hand there are many other services like it but on the other hand, there hasn’t been that much innovation in the market so there is no real reason to move other than price. At lower price points, (€30 – €100 per month) its harder to get people to shift as the savings are small and the hassle involved is significant.
The DD won’t expire like a credit card and is fairly awkward to cancel compared to something like paypal (which is way too easy). Sentenial also chase payments for you which is nice.
I’m not advocating locking someone in to payments but often times customers decide to ‘unsubscribe’ at the spur of the moment and later decide to change their minds. Making it a little more difficult helps make sure that they really do want to discontinue. There is a fine line here though. Its easy to wander over into just being plain annoying. I still have a broadband connection in back in Dublin that I’m paying for because I forgot to post some letter to somewhere or other. (Grr).
Looks like the talk went down well. Congrats.
James
When I think further about this I notice that there are a few other industries that put in very effective barriers to churn. CRM is one of this, once you are bedded into Salesforce or Zoho it can cost 10s of thousands to migrate. I suppose the same is true of all enterprise web applications because there is always a massive cost in change management. However, even then the number of businesses that go out of business every year has to be considered but that wouldn’t be anywhere near 20% (although this year may be an exception to that),
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