James Schramko here. Today, I’m going to address what is a reasonable churn rate for your subscription business?
Here’s the bottom line: if you have a subscription business then, of course, you want to keep as many clients as you possibly can because it takes the pressure off having to get new ones. If you’re constantly losing customers, then you’ve got to keep getting customers or your business will stop working. So what’s a reasonable churn rate?
I’d be looking for a 5% or lower churn rate on a subscription business to have a reasonable churn. Now, as soon as you start getting up around 10% or more, you’re probably not going to have a great business. Unless you can get a lot of new customers, you’ll be constantly treading water and then you’ll eventually drain down and it’s finished.
Now, if you can get your churn to 1% or 2% then you have a fantastic retention. It takes a lot of pressure off. Now, you don’t need to get so many customers in the front door, just focus on the ones you’ve got. And if you keep getting customers, then it will actually grow and you have a scaleable subscription business.
So there are the numbers. 5% is really the key that you want to never go past. And if you can get it better than that down to 1 or 2%, you have a great business.