Churn is the enemy of a great business. Learning how to use a Cohort Analysis to build a stronger business that can survive anything is key to your success. Knowing your profitable customers is key .
What is a cohort analysis and why should you look at your customer acquisition costs. At my old startup in the UK, we started to look at customer churn rates pretty early in our growth phase.
The big reason we did this was because as we expanded across the United Kingdom. We wanted to understand how, and if, Lononders were different from other people in the UK who were buying our product. Our exceptional growth month over month, meant that understanding our customers and reducing churn was going to help us win against the 6 other startups competing in our space. Plus all the legacy businesses who were still around. Within our customer based, one area we looked at through churn is new customer acquisition.
The saying is true, it’s easier and cheaper to keep a customer then it is to acquire a new one. While competitors focused on growth for growth’s sake and giving away deep discounts to sign up people. We wanted to focus on growing a profitable business and making sure we didn’t lose a customer for anything that was within our control.
Instead of building our own cohort analysis tool, we’ve used one built into Mixpanel. We also used Google Analytics but at the time, someone decided we needed MixPanel because of the SMS feature in the platform. Mixpanel did help get us up and running faster and allow us to do some cool pivots on our data. Once we got up and running, we needed to make sure we setup dashboards that anyone in the company could look at.
The first thing we did was strip away repeat customers. We tend to upsell/ cross sell a lot of our customers who bought our service once and encourage them to purchase a repeat subscription. It’s always cheaper to keep a customer than acquire a new one as I said above. Once we were only looking at net new customers and not repeaters, we could start to see how our churn was looking.
Once we stripped away the repeat customers and looked at the job we’re doing acquiring customers, this has brought up conversations around our product offering and customer retention. Both key pillars of us building a business that is sustainable.
Do people understand what they are buying? What made people pick a one off package vs a subscription package? What else can we sell people? At the time we were just selling a house cleaning service but we talked about dog walking, laundry services or any service people would gladly pay someone else to do because they were time poor. Our whole marketing was around getting time back in your day to do the things you love, while we take care of the chores you hate.
For customer retention, over 60% of our new customers bought a one off package. This was understandable as people wanted to try out the service before committing to something long-term. However, in order to get that repeat business, we needed to make sure we sold ourselves correctly from the moment they bought.
As we switched over from talking about house cleaning services and focused on what people would get. We talked about people getting time back in their day in our marketing and on our website. We found that our churn started to drop and we had a better retention of our customers.
What made it work for us as a smaller startup, was the laser focus on the most important part of our business: retention of our net new customers. We made sure to stripe away repeat customers and try to understand what we were selling. Of course luck and timing had a hand to play but you can never underestimate focused work. That is it for this week. See you next time.