Why revenue retention is the wrong operating metric to combat churn

Edited excerpt from Why Retention Is The Silent Killer by Brian Balfour:

When I ask someone from a SaaS business, or another subscription model business, about their retention, I almost always get an answer involving monthly or yearly revenue retention. This is a red flag for me. I’m far more interested in how retention is reflected in the breadth and depth of product usage.

Why, you ask? Revenue retention is the output of engaged users. The usage is the input, and looking only at revenue retention as a proxy for usage retention has two big problems:

1. Revenue can hide what is going on under the hood with product usage, and shield you from signals about your product’s health over the longer term. You may earn a month or a year’s worth of revenue from a paying subscriber, but if that person isn’t using the product, they will churn when that month or year is up.

2. If you are trying to improve retention but only tracking revenue retention, the game is over before you’ve even had the chance to play. Once a paying subscriber has churned, winning them back is almost impossible. If you want to improve retention you need to look at usage retention first.

Notes:
(1) Contrast Brian’s emphasis on product usage with David Skok’s approach in How to reduce churn.
(2) Cf. The relationship between frequency of habit and customer retention.
(3) Cf. How to reduce churn by identifying your “red flag metrics”.
(4) …and the other posts in the Churn & Retention section of Best practices for startups — a list by topic.

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