“I’m interested in hearing your motivations for focusing on customer acquisition while my churn rate is so high. Wouldn’t it be better to focus on my product, the onboarding and getting people more engaged to increase the retention first?”
I believe that most 1-6 months old SaaS businesses should focus on customer acquisition no matter what their churn rate is.
The intention of the customer acquisition at this phase isn’t to scale the business. The intention is to drive enough customers through the app to find product-market-fit and fix problems in onboarding.
Here are the 3 main motivations:
- There may be nothing wrong in your product
- The churn math doesn’t work in your advantage when your business is small
- The churn numbers aren’t reliable in the first months
It’s a big pitfall to stay focused on your product right after the launch, when you should be super-focused on your customers. This especially affects technical founders, because the focus on product comes so naturally.
So let’s go through the reasons why I believe you should put all your efforts to marketing, onboarding and studying your leads and customers to find that product-market-fit.
1. There may be nothing wrong in your product
It’s not you who gets to say: “I love this app” or “This app sucks”. It’s your customer. But here’s the key – for every person who loves your app, there’s another who hates it.
Everyone who signed up last month is not your ideal customer.
If you now start improving your product based on the current feedback, you may be prematurely optimizing a perfectly fine product. A product that someone else would love just like it is.
What if you’re just not reaching the right people? What if you’re not appealing them in the right way to get them to sign up?
You need more data to find product-market-fit. The best way to get the data is to drive more customers to your app. Yes, your churn is high so you lose many of them – but the purpose isn’t to scale, it’s to get more information. Talk to these customers a lot, help them in onboarding. Email them, Skype them, do whatever is needed to dig out who they are and what they think about the world and your product.
In the beginning you may also have these feelings that your product is not mature enough or not good enough. Those are just feelings and it’s normal to have them. Try to ignore those feelings. What you need is data – real customer actions – to confirm where your product actually stands.
It will take time to find out who your business concept will best work for – to find that product-market-fit – and only after that you’ll be able to craft the marketing message that optimally attracts the people you want and repels the people who would hate it. And only after that you’ll be able to optimize your product in a way that appeals to your ideal customer.
2. The churn math doesn’t work in your advantage when your business is small
A big percentage from a small number is still a small number.
When your business is small the gains from optimizing retention are small too. A big change in churn rate could account for just a couple of hundreds per month – a sum that’s much much easier to gain by just getting more new customers.
When you start with a very high churn rate, your business behaves more like a regular non-SaaS business. Lots of people make a living with those plain old regular businesses – by getting in a bunch on brand new customers each and every month.
It requires a mass of customers to make an impact by working on churn.
It’s pure math and SaaS business dynamics, so I encourage you to download this projection spreadsheet.
Just try out the numbers. You’ll soon find that even though reducing churn rate allows your business to grow bigger, you are more probably to grow faster by focusing on acquisition.
3. The churn numbers aren’t reliable in the first months
The very first churn rate numbers are not reliable:
- The amount of customers is too small
- Overall churn rate is misleading for very small and very large businesses – it hides information
It’s a normal pattern to see the churn rates wildly swing up and down in the first months. What your first 10 customers do might not be what the next 10 will do. There is not enough data yet.
As long as you have less than 100 customers, you should be careful about making any assumptions based on your churn rates – always look at the actual money and customers lost.
But even if you would have 100 customers in your very first month, I’d still plead you to wait 3 months.
All the recommendations for churn rates are made for established SaaS businesses – they expect a certain distribution of customers in different lifecycle phases.
Churn rates change based on what lifecycle phase is going on. We can see this in Cohort Retention Charts. The line often curves.
It’s a very common pattern: lot’s of customer churn in the first few months and then the churn levels down:
What kind of customers do you have during the first months?
Only the customers that are in high-churn phases of the lifecycle.
This means that the overall churn rate will be a bit high at the beginning, no matter what you do. It also means that the overall churn rate tends to go down with time. This is an important phenomenon to understand. It’s also the reason why cohort retention is so important when your business grows.
So you can expect your churn rates to taper down naturally. How the retention curve bends is different for each business, but you can safely ignore the first 3-5 churn numbers.
In any case, at this point the most dramatic changes to churn aren’t made by improving your product – they’re made by finding the product-market-fit.