3. Churn vs. age: Older company correlates to less churn
Interestingly enough, we saw a similarly strong correlation when it came to the age of the company with companies longer in the tooth seeing significantly lower churn than those who were younger. Of course, there's survivor bias here, but you'd hope to see this when it comes to a growing company.
In fact, our data indicates that companies that are less than 3 years old can see anywhere from 4% to 24% churn, while those established more than 10 years ago report on average around 2% and 4% churn.
Let's dig into some truly actionable cuts answering what the biggest influences on churn we could find are.
Tip: Increase proportion of annual contracts
Along this axis, the first piece was really the proportion of annual contracts in the business. Regardless of ARPU, those companies with a higher percentage of annual contracts see significantly lower churn. This is because these customers have only one purchasing decision per year (albeit a larger one) whereas their monthly counterparts have 12 purchasing decisions per year.
Tip: Bring down your credit card failure rate
Delinquency rate also significantly correlated with high churn. Delinquencies are credit card failures, and it turns out 20-40% of churn is typically from delinquent churn. This churn is painful because it's completely mechanical with over 130 different reasons a credit card will fail, but most companies don't have a good solution for combatting this churn.
3. Churn vs. VC funding: Churn 20-30% higher with funding
Finally, and likely most controversially, we found that those companies with funding saw 20-30% higher churn rates than those who didn't take on funding. There's likely a number of reasons for this, but through qualitative research we've found that a likely culprit is the false sense of security that comes with the moral hazard of being able to spend your way out of growth holes. Not saying don't raise funding, but be careful and ensure funding is a tool, not a crutch or a bandaid.
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