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 crucial.

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 we were expanding across the United Kingdom. We needed to understand how, and if, Lononders differed from other people in the UK purchasing our product. Our exceptional growth month over month meant that understanding our customers and reducing churn was the key to our succeess against the competition in the space. Within our customer base, 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. Competitors were focused on growth for growth’s sake. They were giving away deep discounts to sign up people, while we wanted to focus on growing a profitable business. Making sure we didn’t lose a customer for anything that was within our control was our difference.

We needed a cohort analysis tool. Instead of building our own, we used one built into Mixpanel. We also used Google Analytics but at the time, someone decided we needed MixPanel because of its SMS feature. Mixpanel did help get us up and running faster and allowed us to do some cool pivots to our data. Once that was set up, 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 tended to up/ cross sell a lot of our customers who bought our service once and encouraged them to purchase a repeat subscription.  It’s always cheaper to keep a customer than to acquire a new one, as stated previously. 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, it brought up conversations regarding 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 other service people might gladly pay someone else to do due to a lack of time. 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. In order to get that repeat business, though, we needed to make sure we sold ourselves correctly from the moment they bought.

So, 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. Something that people feel they are sorely lacking. As a result, 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. The most important part of our business was the retention of our net new customers. We made sure to strip 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.