Forget about Growth. Here’s the Metric that Really Matters.

The growth vs. churn quadrant
Let’s start by looking at when each of these metrics matters more during a product’s lifecycle

growth-vs-churn-quadrant

1. Low growth, high churn
Whatever you’re doing, it’s not working. You’re hemorrhaging users while failing to add more, so it’s pivot time. Given the goal of righting the ship, growth is a better metric to focus on to see if you’re effectively changing the dynamic by offering and promoting new features and functionality.

2. High growth, high churn
You’re onto something, but execution is the issue. New users signing on means your messaging and value propositions are cutting it, but users aren’t sticking with the solution. The company can’t afford to keep spending money on user acquisition if those people don’t last for long as paying customers. It’s time to take a deep dive into user behavior analytics, surveys and interviews to uncover what’s leaving them cold and causing them to abandon ship, so churn takes priority.

3. Low growth, low churn
With a loyal customer base, there’s a strong foundation to build on strategically. Product development efforts can be selectively chosen to experiment with growing the appeal to new pools of users. Marketing activities should also be reevaluated, and the spotlight can shift to growth.

4. High growth, low churn
The holy grail is in your grasp! New users coming in, old users staying put, revenue solely headed in a good direction. Assured that you’ve got a winning combination, do you double-down on growth or try and squeeze that churn rate even lower?

When it’s churn’s turn
Once a product and its growth campaigns have reached maturity and are both performing well, product management can be more strategic and less reactionary in its prioritization. Product market fit has been achieved and glaring problems or shortcomings in the product have been addressed. This is the time to focus on churn.

Let’s look at the numbers. If a company charges $10 per month, each new user means an extra $10 in revenue, and every lost customer means a loss of $10 in revenue. If it was just as easy to add one new customer as it was to retain an existing customer, then it wouldn’t really matter whether a company focused more on growth or reducing churn.

However, there is usually a cost to acquiring each of those new customers. If it costs $100 on average for each new customer, the company doesn’t even break even until month 11. So now the goal is not only to add new customers, but to keep them around for at least 11 months to even consider that customer profitable—and that assumes there is zero incremental operating cost to adding and maintaining each customer.

This illustrates why it is so important to reduce churn, and why each saved user is more valuable than each new one. Even when the acquisition cost is only $20, it’s still not until at least Month 3 for them to become profitable, and every customer who doesn’t last represents not only a $10 per month loss in revenue but also any unrecouped money spent on acquiring them.

“Focusing on just one year, if you have a churn of 5% of customers a month, you need to grow a staggering 45% in a year just to remain stable,” says Dave Martin of Tes. “In absolute numbers, starting in January with 2,000 customers suffering a monthly 5% churn and acquiring no new customers, results at the end of December in only 1,080 customers… But with a 1% monthly churn this product can celebrate annual growth of 715 customers, or 36% growth. ”

Churn means more than lost revenue
Aside from the purely financial impact of a customer unsubscribing, shedding customers has other negative repercussions. If a customer quits—particularly when it’s due to a negative experience—they are potentially a negative growth agent if they share their unsatisfactory experience with other potential buyers.

This can manifest itself in negative online reviews, poor recommendations, or even industry headlines in an enterprise setting. Definitely not helping your Net Promoter Score.

Additionally, as internal executives and outside investors evaluate the company, higher churn rates can raise a red flag about long term viability. There’s always a ceiling for growth, so stakeholders want to see that even when growth plateaus the business is truly sustainable. If users are consistently canceling their subscriptions, slowed growth can lead to a net negative in monthly revenue over time.

A lost customer is worth more than a new one
The older a customer, the more their departure hurts. New customers are less likely to be a good fit for your product, as the earlier someone adopts the more pressing their need for your solution. Plus that old customer had already paid off their acquisition cost and was a true profit center, while new customers need time to pay that off, plus the amount to acquire them likely was higher as it was more recent.

But you can also learn something from that lost customer, namely why they left. Were they drawn to a competitor? Did the value your solution offered fade over time? Was a missing key feature causing them to bail out? Answering these questions can inform what should be done to retain your current stable of paying customers and attract new ones.

Pay attention to pre-churn indicators
Many people don’t cancel subscriptions the second they stop using them; they might be lazy, want to avoid confrontation, not realize immediately that they’re definitely not using a product anymore, or simply aren’t sure if they’re really going to give it up forever.

Regardless of their reason for putting off cancellation, eventually those people will pull the trigger after seeing a credit card statement or being asked by their boss why they’re still paying for something they never use. So even if customers aren’t immediately heading for the exits, there’s a chunk of users (or potentially non-users at this point) that represent an imminent cancelation.

There are three reasons to pay attention to this cohort. The first is that if you can recognize the tell-tale signs of a user in wind-down mode they could be eligible for revitalization from customer success or account management. Knowing the indicative metric in this case can prioritize those customers for follow-up.

Is churn ever a good thing?
There are cases where losing a customer is a win in the end. They typically come in three flavors:

  • Too high maintenance—SaaS businesses succeed with scale, so when a customer needs constant hand-holding and special treatment or customizations, they may not be worth their monthly or annual fee.
  • Clinging to the past—When a customer leaves because you no longer support an outdated technology they still want to use, it’s the price of progress, but generally one worth paying.
  • Relics of a previous era—Businesses evolve and their new strategies and models may not work for early adopters who signed up for a markedly different service. While you don’t want to leave loyal customers hanging, if it’s a small enough cohort it’s probably best to say goodbye.

Shedding a few old-timers and getting a fresh start with only customers interested in the current offering can avoid distractions and help cull your backlog of irrelevant items.

Seven Fixes for American Capitalism

Ideas from the Right, the Left, and across the Atlantic to mend what’s broken in our economy.

Antitrust Pivot

Many of the U.S.’s biggest economic ills—rising inequality, stagnant wages, low productivity growth—stem in large measure from corporate consolidation and monopoly power run amok. That’s the message from a new breed of policy wonk urging a return to the trustbusting days of the early 20th century.

The movement—labeled the New Brandeis School by its proponents and derided as Hipster Antitrust by its critics—is looking to ditch the Chicago School approach that’s dominated antitrust enforcement since the late 1970s. The Chicago School hews to what’s known as the consumer-welfare standard, which finds mergers anticompetitive only if they raise prices.

The new model takes its inspiration from Supreme Court Justice Louis Brandeis, who emphasized the need to restrain big companies and the concentration of economic power. Lina Khan helped galvanize the movement with a 2017 paper she wrote as a law student at Yale that made the case that Amazon.com Inc. is a threat to competition, even though it’s lowered some prices for consumers.

Any ambitious government-led project to reshape the U.S. economy usually runs into the same objection: We can’t afford it. One school of economic thought says that’s all wrong.

Modern Monetary Theory, a once-fringe set of ideas now getting some mainstream attention, says governments borrowing in their own currency have more room to spend than they think. The U.S., for example, can run deficits without having to worry about going bust, because it creates the dollars in the first place. The real constraint only kicks in when there’s too much spending relative to a limited supply of goods and services—in other words, when inflation spikes. And there’s been little sign of that in America for decades.

MMTers argue that their system isn’t so radical; it’s the way things already work, at least some of the time. Presidents, including the current one, haven’t balked at measures to boost the military or cut taxes, even when the resulting deficits run into the hundreds of billions. And emergencies, such as the 2008 financial meltdown, typically push concerns about balanced budgets deep into the background.

Now there’s a different sort of emergency on the horizon: climate change. Since the threat is arguably greater than economic depression or even war, it requires action on a suitably vast scale, argue Democrats who’ve picked up on the issue.

And MMT offers a key to unlock the financing. That’s why freshman Representative Alexandria Ocasio-Cortez, one of the first U.S. politicians to talk publicly about MMT, is also at the forefront of the drive for a Green New Deal. The maximal version of that program includes shifting the U.S. to 100 percent renewable energy within 10 years. If that wasn’t ambitious enough, the plan also calls for the government to guarantee a job for everyone who wants one—an MMT favorite that’s also a throwback to Franklin D. Roosevelt’s New Deal.

“Clearly, the environment matters more than entries on balance sheets,” says Randall Wray, a senior scholar at the Levy Economics Institute of Bard College and one of MMT’s most prominent proponents. “The environmental thing is real. It’s not financial.”

MMT’s detractors say government spending on that scale could trigger the kind of inflation that would wreck the whole economy. America’s national debt has already ballooned since the Great Recession, they warn, and adding more will erode the country’s creditworthiness and undermine the dollar’s role in global finance.

While those warnings are still frequently heard, there are signs that they’re losing their impact as the debate leans left. Several renowned economists who aren’t MMTers have recently tried to downplay the risks attached to deficits and debt. They include Olivier Blanchard, former chief economist at the International Monetary Fund, and Obama administration heavyweights Larry Summers and Jason Furman. Bank of England chief Mark Carney has made the case that action on climate change represents an economic opportunity, not a burden.

Ocasio-Cortez didn’t manage to garner enough Democratic support for her first attempt at actual legislation, a proposal to set up a Green New Deal committee. But there’s broad sympathy for the idea in principle, including among several of the party’s presidential candidates, and many of them have also endorsed a jobs guarantee. —Katia Dmitrieva

Tech to the Rescue

Amazon.com Inc. Chairman and Chief Executive Officer Jeff Bezos wishes there were a trillion human beings in the solar system. With room for that many people, there would be “a thousand Einsteins and a thousand Mozarts,” he told the Economic Club of Washington, D.C., in September. The world’s richest man is funneling $1 billion or more a year into a company, Blue Origin, that he hopes will help make extraterrestrial settlement a reality, creating places to live for all those Einsteins and Mozarts.

Bezos and others argue that innovation is the essential ingredient in human betterment. They have a point. Life would be pretty awful without the advances made by past generations, such as indoor plumbing, vaccines, refrigeration, and telephones. Bezos even asserts that freedom itself, not just material well-being, depends on technological progress: “I don’t even think stasis is compatible with liberty,” he told the Washington audience.

In the view of the tech-to-the-rescue crowd, innovation can solve just about every problem humanity faces. Global warming can be fixed with better electric cars, solar cells, wind turbines, and batteries. Income inequality can be solved by educating or retraining workers for the high-tech jobs of the future.

The Information Technology & Innovation Foundation, a Washington think tank founded in 2006 to propagate this philosophy, argues that using antitrust law to break up or discipline the big technology companies can backfire, discouraging innovation and harming consumers. Robert Atkinson, president and founder of the ITIF, co-wrote a 2018 book with Michael Lind called Big Is Beautiful: Debunking the Myth of Small Business.

The techies welcome a prominent role for government in paying for education and conducting or supporting research and development. But the movement is split on trade. The nationalists want to keep the U.S. in the tech vanguard and are willing to resort to tariffs and subsidies to preserve its dominance. The globalists, including some heads of multinational companies that earn lots of their profits abroad, are happy to see other countries advance technologically, figuring that the benefits of breakthroughs—say, a cure for cancer—will be shared by all of humanity regardless of their origin.

The common theme is that prosperity depends on a robust tech sector. “We’re in a 10-year productivity depression” that’s hurting living standards, says Atkinson. “Tech is really the only way we’re going to raise productivity growth.” —Peter Coy

Tariff Truthers

If there’s one thing most economists around the world today can agree on, it’s that tariffs are bad. Protect one domestic industry with an import tax, and you hurt a swath of others. Tariffs reduce choices for consumers and push up prices for goods. They stifle competition and deter innovation. And they invite other countries to retaliate, leading to the sort of tit-for-tat behavior that’s left U.S. soybean farmers watching crops once destined for China rot in their fields.

Libertarianism

Devotees of small government were stirred by candidate Trump’s vow to “drain the swamp” and pull U.S. troops out of foreign quagmires. But President Trump, with his tariffs and deficits, has proved to be “the opposite of a libertarian,” the Libertarian Party declared in March.

Still, the free-market purists aren’t giving up the fight. One of their bugbears is the Federal Reserve and its cheap money—a distortion of the market’s natural efficiency, according to Austrian economist and libertarian idol Friedrich Hayek. When Ron Paul, America’s highest-profile libertarian, ran for president in 2012, he pushed for the Fed’s abolition and a return to the gold standard. “If you want to restrain government, you restrain the power to create money,” he said. “That’s what gold does.”

The Fed can probably rest easy. Americans aren’t exactly clamoring for a return to gold, while hyperinflation and other disasters predicted by libertarians in the easy-money decade since 2008 haven’t come to pass.

Some libertarian ideas are finding a larger audience. Among them are the call for stripping back zoning rules, because they limit the construction of affordable housing, and their criticism of patents that lock in profits for Big Tech or Pharma and licensing requirements that insulate professionals like doctors from competition. A common theme of such critiques—that the economy is rigged in favor of big and established actors—commands growing support among mainstream economists.

And beyond the realms of U.S. policy, the world is evolving in ways that give libertarians hope. Those who deplore the “tyranny” of central banks are rejoicing at the explosion of cryptocurrencies. (The Libertarian Party accepts donations in Bitcoin.) Recreational marijuana use is already legal in 10 states and backed by more than 6 in 10 Americans, according to a poll by the Pew Research Center.

Paul, who outperformed most expectations during his own tilt at the presidency, says a popular Libertarian candidate could well emerge in 2020. It’s a stretch to say he’s cheerful about the wider outlook, though. “It’s a bubble economy in many, many different ways, and it’s going to come unglued,” he told the Washington Examiner. —Andrew Mayeda

Davos: A Family Reunion for the People who Broke the Modern World

For the past several decades, world leaders, CEOs, tech titans, billionaires, philanthropists, and celebrities have descended upon Davos, Switzerland with the goal of “improving the state of the world.” Anand Giridharadas, author of Winners Take All: The Elite Charade of Changing the World, says they are part of the problem.

Trade wasn’t working for everyone.

Dynamic scheduling, underpaid, contractors, fight minimum wage, more flexible labor, tax cults for the wealthy anti-inheritance taxes, evade existing taxes, rewards offshoring, expresses no loyalty to communities. (5 min)

I don’t think arsonist need to attend at a firefighter’s convention.

Poor people are very accessible. They want someone to bear witness. They don’t have publicists.

You can’t understand inequality without understanding rich people and the systems they use to justify themselves (10 min)

Today’s elites are among the most socially away, yet also predatory

I don’t think we have free markets, we have a capitalism of monopoly, and rent seeking

Jane Meyer’s Dark Money: how we got here.

Business didn’t have power (Nixon started the EPA) and worked to understand it. They used an alliance with evangelicals and philanthropy to build power.

History is life a mob boss: we can do this the easy way or we can do this the hard way.  It can go down like the civil war or women’s suffrage.

82% of new money was in the 1 percent’s hands.

It’s going to require many to become traitor’s to their class.  If Gates devoted as much to pushing an estate tax, he could have a bigger impact.

I think things are changing.  There aren’t going to be as many Goldman Sachs and McKinsey people in the next administration.

For Trump, Failure Is the Only Option

that they raise it to 4 percent of G.D.P., much higher than the bloated military spending in his own budget. He then claimed, falsely, to have won major concessions, and graciously declared that it is “presently unnecessary” to consider quitting the alliance.

Was there anything our allies could have done that would have mollified him? The answer, surely, is no. For Trump, disrupting NATO doesn’t seem to be a means to an end; it’s an end in itself.

.. While Trump rants about other countries’ unfair trade practices — a complaint that has some validity for China, although virtually none for Canada or the European Union — he hasn’t made any coherent demands. That is, he has given no indication what any of the countries hit by his tariffs could do to satisfy him, leaving them with no option except retaliation.

.. So he isn’t acting like someone threatening a trade war to win concessions; he’s acting like someone who just wants a trade war. Sure enough, he’s reportedly threatening to pull out of the World Trade Organization, the same way he’s suggesting that the U.S. might pull out of NATO.

.. Whatever claims Trump makes about other countries’ misbehavior, whatever demands he makes on a particular day, they’re all in evident bad faith. Mr. Art of the Deal doesn’t want any deals. He just wants to tear things down.

.. The institutions Trump is trying to destroy were all created under U.S. leadership in the aftermath of World War II. Those were years of epic statesmanship — the years of the Berlin airlift and the Marshall Plan, in which America showed its true greatness. For having won the war, we chose not to behave like a conqueror, but instead to build the foundations of lasting peace.

Thus the General Agreement on Tariffs and Trade, signed in 1947 — at a time of overwhelming U.S. economic dominance — didn’t seek a privileged position for American products, but instead created rules of the game to promote prosperity around the world. Similarly, NATO, created in 1949 — at a time of overwhelming U.S. military dominance — didn’t seek to lock in our hegemony. Instead, it created a system of mutual responsibility that encouraged our allies, including our defeated former enemies, to see themselves as equals in preserving our mutual security.

.. anything that weakens the Western alliance helps Vladimir Putin; if Trump isn’t literally a Russian agent, he certainly behaves like one on every possible occasion.

.. Trump obviously dislikes anything that smacks of rule of law applying equally to the weak and the strong. At home, he pardons criminal bigots while ripping children away from their parents. In international relations, he consistently praises brutal strongmen while heaping scorn on democratic leaders.
..

He may complain that other countries are cheating and taking advantage of America, that they’re imposing unfair tariffs or failing to pay their share of defense costs. But as I said, those claims are made in bad faith — they’re excuses, not real grievances. He doesn’t want to fix these institutions. He wants to destroy them.

.. Alternatively, you might have thought that big business, which is deeply invested, literally, in the existing world order would protest effectively. So far, however, it has been utterly ineffectual. And while talk of trade war sometimes causes the stock market to wobble, as far as I can tell, investors still aren’t taking this seriously: They imagine that Trump will bluster and tweet for a while, then accept some cosmetic policy changes and call it a win.

But that kind of benign outcome looks increasingly unlikely, because Trump won’t take yes for an answer. He doesn’t want negotiations with our allies and trading partners to succeed; he wants them to fail. And by the time everyone realizes this, the damage may be irreversible.