Lesson tag: Retention

Reducing churn is critical to the success of your SaaS company.

David Skok, who is a must read for all startups, explains that as a SaaS company grows, the size of the subscribers/customers/users who no longer do business with the company will also, organically, grow.

This equates to a loss of revenue, which requires more and more signups from new customers just to replace what you are organically losing every month.

The conventional rule of creating a great product is to remove all the friction in the user experience. Make it easier to get stuff done at a push of a button. Friction, bad! Fast, good! Let’s take my personal finances out of the equation and look at the buy-now action that Amazon popularized. It’s the very model of a frictionless experience. See, like, want, buy, done.

Negative churn is an incredibly attractive characteristic of a SaaS company because it means that customer accounts are like high-yield savings accounts. Every month, more money comes in, without much effort. This is a powerful effect and can fuel SaaS companies to huge success, as we saw in New Relic’s S-1.