Negative churn, the holy grail of subscription business models

Global numbers: revenue and costs

  • Infrastructure: it's all the necessary costs to keep the service running. In this category, I include website and app hosting costs, domain registration, tools for e-mail marketing, SEO, A/B tests, online chat system, etc. Usually, these costs are recurrent; therefore require a lot of attention every time you hire a new service like the above.
  • Development: here are all the costs to develop and implement new features in your website or application, including programming, interface development, visual design, logo design etc.
  • Marketing: every investment you do to attract clients, such as AdWords, Facebook ads, ads on websites, magazines, newspapers, and TV. We should also include here the costs with flyer printing and distribution, coupons, folders etc. It is important to note that in the beginning, you will very likely need to invest time and money in ways to attract clients for free. This is a long-term investment, but it will help you to save on marketing expenses in the future.

Individual numbers: CAC, LT, and LTV

  • CAC: is the Customer Acquisition Cost. It is the sum of the associated costs with finding and getting the attention of potential clients, and bringing them to your site, converting them into users of your web product and later, into a paying user. For example, imagine that you have only invested in Google AdWords and, on a given month, you have spent $1,000 and got 10 new clients in that month. Dividing $1,000 per 10, you'll have a CAC of $100. That is, your cost for getting each client is $100.
  • LT: it's the Lifetime of your client, i.e., how long on average a client is your client. This number only makes sense when you have a recurrent revenue stream. Using the previous example, let's imagine that the LT of clients you have acquired is 20 months.
  • LTV: it's the Lifetime Value, or the value of a client while he stays as your client. It's the revenue this client generates while still your client. Following the previous example, let's imagine this client generates monthly revenue of $8. Multiplying the LT of 20 months by the $8 per month gives us an LTV of $160.

Revenue churn

Monthly revenue churn = revenue from clients who canceled on the month / total revenue of the month.

How is it possible to have negative churn?

Lean Product Secrets

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Digital product development advisor, coach, and board member. Also an open water swimmer and ukulelist.

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Joca Torres

Joca Torres

Digital product development advisor, coach, and board member. Also an open water swimmer and ukulelist.

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