A few months ago, on a quiet Sunday, I was reading through some of my board decks getting prepared for the upcoming board meetings.
A common theme among all of those decks was a section on churn and the impact it was having – both positively and negatively – on my portfolio companies. Some of those companies, fortunately, are experiencing negative churn as their customers increase the footprint of the portfolio company’s technology.
I got to thinking about this issue.
We have a significant number of metrics we use to measure top of the funnel health for our companies that use a SaaS business model – Customer Acquisition Cost Ratio (CAC Ratio), Customer Lifetime Value, Churn, etc. These are tried, tested and proven metrics management teams and investors use to evaluate how well a company with a recurring revenue model is performing.
However, with churn a critical component of the SaaS model, I asked myself, “Why don’t we have a common metric to measure the health of the bottom of the funnel?”
Key questions are:
- Shouldn’t we know how much we are spending to retain a customer?
- At what point should we “fire” a customer?
- Should that point vary by industry or type of customer?
- When should we parachute in our “customer success” teams?
It seemed to me that if we have a Customer Acquisition Cost metric, shouldn’t we have a Customer Retention Cost (CRC) metric and what would be the elements we would use to measure the CRC and CRC ratio?
So, I put together a bunch of thoughts on what should go into the calculation of such a metric and sent that over to one of our portfolio companies – Totango.
Totango provides a customer success platform. Software companies and others use their platform to determine whether or not a customer is deriving value from a software product. This enables customer success teams to “parachute in” and help a customer derive value from the vendor’s software product and mitigate a key issue associated with churn.
Given they are “in the business of reducing churn”, it seemed to me only natural that they take my initial concepts, flesh them out, and launch the CRC and CRC Ratio metrics into the industry as a whole.
I am happy to report they have done that with a fantastic white paper on the subject. I would encourage anyone dealing with churn/retention, to read this paper and add to the conversation.
The CRC and CRC Ratio are not metrics to be owned by any one individual or company. They need to be owned by the industry and your contributions are welcome.
Sep 01, 2015