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I recently came to terms with a\u00a0brutal truth<\/em>\u00a0about scaling a business.<\/p>\n We did an analysis of our company\u00a0churn rate<\/strong>\u00a0(client subscription cancelations) and the numbers came up pretty good.<\/p>\n The data showed 2.5% to 3% churn on average (we lose 3% of our clients each month).<\/p>\n If you\u2019re not familiar with industry churn rates, under 5% is a good target, the lower the better of course.<\/p>\n If we can stay at 3% forever I\u2019d be happy.<\/p>\n Low churn means our clients experience value and thus want to keep paying for our service.<\/p>\n Another way to put this is we don\u2019t have a \u2018leaky bucket\u2019.<\/p>\n Leaky bucket<\/em>\u00a0syndrome is when you work really hard on your marketing and sales, get customers coming in, only for them to cancel and refund at a rate that makes it impossible to grow.<\/p>\n However, churn can be a deceptive number, even when it\u2019s low.<\/p>\n For example\u2026<\/p>\n I went on to crunch some potential future numbers to see how a 3% churn rate plays out as we grow.<\/p>\n With 50 clients, 3% churn = 1.5 clients lost per month This means that at 500 clients, we need at least 15 new ones just to not go backwards.<\/p>\n And this assumes we maintain 3% churn as we grow.<\/p>\n Right now I\u2019m working to get us to a consistent 8 new clients a month.<\/p>\n We\u2019ve hit that number before, but not stayed there.<\/p>\n 15 would be a major breakthrough.<\/p>\n Yet as we get bigger, 15 simply becomes maintaining the status quo.<\/p>\n If we are to continue to grow, we can\u2019t just rely on today\u2019s growth rate.<\/p>\n When we get 4 new clients and churn is 2 lost clients, we\u2019re adding +2 net each month.<\/p>\n But as we get bigger, we\u2019re going to lose 3 per month, then 4, then 5, etc.<\/p>\n Gaining 4 new clients won\u2019t be enough to break even.<\/p>\n Our growth rate must continue to outpace our churn.<\/em><\/p>\n In order to beat churn there are two options \u2013<\/p>\n 1. Find new marketing channels as a never ending process.<\/strong><\/p>\n We can improve existing campaigns, but they will hit a ceiling and they will deteriorate eventually.<\/p>\n We will always need a new marketing campaign breakthrough, then another, and another.<\/p>\n This is why you need a marketing department that never stops working to find the next improvement, and the next breakout campaign.<\/p>\n 2. Rely on referrals to keep us in positive territory.<\/strong><\/p>\n Word of mouth<\/em>\u00a0is at the heart of most companies that scale.<\/p>\n This is because word of mouth has a built-in positive reinforcement loop.<\/p>\n Each client you get refers more, which refer more, and so on.<\/p>\n This assumes a strong referral rate, which ideally stays above your churn rate.<\/p>\n Coming to terms with this made me realize I need to adjust priorities.<\/p>\n Increasing word of mouth referrals needs to be priority one.<\/p>\n I believe this is the only path to take our company to where I want it to go (8 figures and beyond).<\/p>\n Advertising campaigns work, but without enough referrals we\u2019re going to struggle to reach each new milestone.<\/p>\n If you\u2019re wondering why this is, it\u2019s because referrals are just better on all levels.<\/p>\n Advertising costs money, is up and down, degrades in performance over time and can bring in clients who churn more quickly.<\/p>\n I\u2019ve been thinking deeply why we don\u2019t get enough referrals in my company.<\/p>\n As you decrease churn you are increasing client satisfaction, but it may not be enough to trigger referrals.<\/p>\n Here\u2019s a simplified scale for client satisfaction:<\/p>\n Unhappy clients = high churn Clients who are satisfied may not cancel, but they don\u2019t tell other people about your company.<\/p>\n Word of mouth only happens when a client is so happy they are excited to \u2018brag to their friends\/family\/colleagues\u2019 about what your product or service does for them.<\/p>\n They also need to be in situations where it makes sense for them to talk about your business.<\/p>\n If most of your clients are in one industry and they interact with others in the same industry, word of mouth opportunities surface more regularly.<\/p>\n If simply using your product exposes it to other people, that can make word of mouth very natural.<\/p>\n In our case, the problem we solve (email overwhelm) is universal, but not widely talked about.<\/p>\n We do get occasional word of mouth when a client speaks to a colleague within the same company.<\/p>\n We have also had word of mouth within coaching groups when the topic turns to productivity and roadblocks to growth.<\/p>\n This is why this year I want to double down on these two elements.<\/p>\n Hopefully my thought process has also helped you think about referrals for your business.<\/p>\n Keep growing!<\/p>\n Yaro<\/p>\n \n\t\t\t<\/div>\n
100 clients = 3 lost per month
200 clients = 6 per month
500 clients = 15 per month<\/p>\nHow To Stay Ahead Of Churn<\/h2>\n
Leaning Into Referrals<\/h2>\n
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What Triggers A Referral?<\/h2>\n
Satisfied clients = low churn
Delighted clients = word of mouth<\/p>\n\n