Looking at subscriber and free churn rates

I was recently asked to look into churn rates for subscription models. I found it tricky to find real industry numbers, but here are the fruits of my digging.

First of all, how we define churn:

Total Subscribers = (Total Subscribers * Loss Rate) + Acquisitions

To get a churn rate, you need to compare your total subscribers from one period with the amount of change within the base.

Of course, you have to be able to know when a customer leaves. For the purposes of this post, I’m talking about specific subscribers to a paid service. Churn on a free service is, I believe, harder, because you have to decide on some activity rate beyond which you feel that user is gone. Could a week, month, two months, three months…

Second, some things that affect churn:

Your rate of acquiring customers is obviously affected by how viral your service is, and your marketing and promotional efforts. Your subscriber cancellations will always be a percentage of your total user base, and that percentage will be affected by things like the quality of your service, how easy it is to cancel, the competitive situation and so forth.

Getting beyond point of no return

At some point, your customer growth flattens because you can’t add subscribers fast enough to counteract the number of customers leaving. That’s when a focus on customer acquisition and churn reduction is critical, and/or you have to spend more to keep growing at the same historical rate.

Some churn rates I found are below. Naturally some are audited and some are not; some are free and some are not! So take it for what it’s worth!

Company Churn Rate Source / Reference
Sprint / Nextel $2.18% – 2.05% wikiinvest
AT&T 1.17% – 1.69% ZDNet
MySpace 30% Nielsen, April 2009
Facebook 30% Nielsen, April 2009
Twitter 60% Nielsen, April 2009
Mobile video services 22% Nielsen, Sept 2009
SiriusXM (in car service) 60% TheFool
Netflix 4.2% Mainstreet Blog, reporting TheStreet.com

Is the elevator pitch outmoded?

Michael Port seems to think so. He believes it’s all about the conversation. Showing your passion with a back and a forth. But I have heard so, so many people totally fail at answering the question “so what does your company do?” in a way that’s brief and coherent, I still think it’s critically important to have that simple, reliable statement.

If you, or anyone in your company, can’t communicate your value proposition instantly, quickly, and correctly, you’re in trouble.

OTOH, Michael’s list of what you should be able to answer is good:

  1. Who you serve (your target market)
  2. What they need and desire (problems they have and things they want)
  3. What solutions you offer (products and services)
  4. The big, bad result they get from your products and services (the money shot)
  5. The deep-rooted core benefits they get from that result (financial, emotional, physical or spiritual ROI)

Thanks, Michael. That list I like. But I’m still going to try to stick with an elevator statement at the beginning. It’s a good forcing discipline.

I want to get me one of these

I can’t wait for the Apple’s tablet. Sorry, Amazon. I have a Kindle. I just don’t like it. For a start, I keep poking the screen trying to navigate. I hate the flash as it moves through pages. I hate the keyboard. (Anyone remember the 80s Peanut chicklets? It’s worse.) I hate the searching. Sorry, but I just don’t like any of it.

Now, this. This looks tasty:


Could Apple save the magazine and newspaper industry too? Is there no end to its awesomeness?

And Apple is clearly feeding the frenzy of speculation with leaks about how Apple users would pay almost anything for the tablet. Errmm. That might include me too.

Plenty of room for non-games in top iPhone spots

Looking today at the top 100 grossing apps for the iPhone. You can see them yourself here. (Will launch iTunes.)

Of the top 100, 68 are games. 32 are various productivity or travel helping apps, including smattering of adult stuff and one recipe app. (Well done, Jamie!). Plenty of room for interesting things that aren’t games in the top 100! I wonder how the line up will change this time next year.

Here’s the list:

  • #2 MobileNavigator North American $89.99
  • #3 RedLaser tag reader $1.99
  • #18 DocumentsToGo for taking docs $9.99
  • #25 Truth or Dare Dating $1.99
  • #26 MotionX GPS Drive $2.99
  • #27 Textfree Unlimited, send SMS messages $5.99
  • #29 Jamie Oliver 20 minute meals $7.99
  • #30 TomTom US and Canada $99.99
  • #31 LogMein Ignition remote control of Macs and PCs $29.99
  • #32 ColorSplash photo editor $1.99
  • #33 Awesome Note and ToDo $3.99
  • #36 iFitness $1.99
  • #44 Police Radio $0.99
  • #45 Zagat To Go $9.99
  • #46 Japanese English Dictionary $19.99
  • #48 Tweetie Twitter Client $2.99
  • #50 Air Mouse Pro for turning iPod/Touch into remote for Mac
  • #52 Flight Track $4.99
  • #53 CNN Mobile $1.99
  • #57 The Weather Channel $3.99
  • #60 Quickoffice Mobile Office $9.99
  • #64 Midomi Music Identifer $4.99
  • #72 Scanner911 $0.99
  • #72 WunderRadio $6.99
  • #73 CoPilot Live North America $34.99
  • #75 Naughtie Hotties Video $0.99
  • #75 Documentstogo $14.99
  • #88 ReelDirector video editing $7.99
  • #92 TVUPlayer TV player $4.99
  • #97 Pocket Informant organizer $12.99
  • #99 FlightTrack Pro $9.99
  • #100 BeatMaker – $19.99

Of course this list is for top grossing apps — so those expensive GPS apps skew their numbers. If we look at the list for top paid apps, there is a larger proportion of low-priced games.

Update Oct 27: Google’s app store. Opportunity to catch the wave early? I don’t underestimate Google. And with their mutual board members leaving each other’s boards, they are clearly getting closer to a head to head each day. I just want to make sure that I’m on the winning side! And sorry, that won’t be Palm.

How much is too much to pay for a customer?

Been working with a client recently on the gnarly problems around how much to pay to acquire a customer. Thought it would be useful to share this nifty calculation with represents one way to look at the issue.

Traditionally, companies look at a marketing/sales expenditure to be 15-20% of each revenue dollar. But you may have different models. And, frankly, with almost all the companies I work with, there’s only a very slim marketing budget available. So let’s look at it from the perspective of the lifetime value of a customer:

Lifetime Value equation:

LTV = (Frequency of Purchase) X (Duration of Loyalty) X (Gross Profit)

– How frequently does your customer buy? (say, 12 times a year with a monthly renewal plan)
– How long does your customer stay with you? (let’s say 1 year for argument’s sake)
– What is your profit? (let’s say $5 a month)

Take the average for each of these three questions and plug that into the LTV equation and you have your Lifetime Gross Profit contribution of a customer.

From there you can answer the question “How much can you afford to acquire a new customer?”

A traditional rule states 1/3 of the LTV can be spent to acquire a new customer. Using the numbers above, here’s how the equation plays out:

(12 x 1) x ($5) : one third equals $20 to acquire each new customer.

This assumes you have a retention rate within normal ranges—most companies experience 20-25% attrition of customers each year. If it’s more, then there’s a different problem — no brand loyalty.

I’d be curious to know your feedback and experience in similar equation models.