I’ll start this post with a question:
If your current conversion rate results in 15% month-over-month growth and 4% monthly churn, how much of a difference would it make to your business if you gradually improved your conversion rate to increase growth to 20% and worked on reducing churn to 2% over the next two years?
Brad Feld recently wrote about focusing on ICDC – increasing conversions and decreasing churn. Of course, we all know that higher conversion and lower churn will lead to better results. But as Brad points out…
the modeling for the year was to include both an increase in conversion month over month (modest) and a decrease in churn month over month (also modest). There was acknowledgement that if we didn’t have a change in the number, no one would focus on it.
Like everything in business, it’s unlikely to happen unless you have a plan and someone has responsibility to make it happen. And before you can decide on the right plan, you need to know what impact focusing on these areas will have on your business.
So let’s take a look with a simple example:
We’ll start 2017 with 100 subscribers at $1000/month. 15% month-over-month growth, and 4% monthly churn.
That gets us from $1.2M starting ARR to $3.8M ARR to end 2017, and $13.4M ARR to end 2018.
What happens if we focus on decreasing our churn from 4% to 2% over a two year period?
Over a 2-year period, that would result in a $3M+ increase in ARR.
What if we focus on increasing our conversion rate to drive growth rate from 15% to 20%?
That increase in growth would result in a $7M+ increase in ARR.
And what if we were able to commit the resources to do both?
Here’s the customer ramp side by side – the difference is staggering!
And the difference in ARR? Almost double from $13.4M ARR to $25.7M ARR.
Of course, this is just a hypothetical example, and you’re unlikely to be able to achieve everything all at once. But understanding how changes in different numbers affect your results will let you make the right resource allocation decisions to maximize your opportunity. So here’s to a great 2017 with lots of ICDC for everyone!