The churn rate refers to the percentage of customers or clients who cease using a particular product or service within a given period. This metric is crucial and, in most cases, is one of the key KPIs tracked by a company. A growing churn rate requires direct attention from the Management Team s it may indicate dissatisfaction, issues with the product, or intense competition, while a low churn rate is a clear sign that customers find value and stick with the product/service. This is equally valid for deep-tech startups.
To calculate the churn rate, you typically divide the number of customers lost during a specific period by the total number of customers at the beginning of that period and multiply by 100 to express it as a percentage. In general, the goal for deep tech companies is to minimize churn and retain customers by continually improving product quality, addressing customer concerns, and staying ahead of technological advancements. Of course, when selling to customers outside of the target customer segment, higher churn can confirm the market- and customer segment analysis (although it might be an expensive way of finding confirmation).
The “expected” or acceptable churn rate can vary significantly depending on the industry, business model, and type of product or service offered. In the context of a deep-tech product, where innovation, market dynamics, and customer expectations may differ, it’s challenging to pinpoint a universally accepted “normal” churn rate. Not only because the product might be unique and/or the market might be new but also because churn rates are, in general, kept secret. However, it is worth the effort to dig deep to come up with data that helps bracketing/benchmarking your (to be expected) churn rate.
Clearly, a low churn rate is desirable, as it indicates good customer retention. Many software-as-a-service (SaaS) companies, aim for an annual churn rate in the range of 5% or less. Churn rates higher than this might be a cause for concern and could indicate issues with product-market fit, customer satisfaction, or competitive pressures.
It’s important for companies to track and analyze their churn rates over time, comparing them to industry benchmarks and considering the specific characteristics of their market. Some industries or products may naturally have higher churn rates due to factors like rapid technological changes or shorter product life cycles.
Ultimately, what is considered an acceptable churn rate for a deep-tech product will depend on factors unique to the company and its market. Its churn rate, as a fundamental KPI, requires ongoing monitoring and, in case of changes, specifically negative changes, further review and analysis to determine the cause(s) for the change. As a next step, internal processes can be reinforced to counter a specific trend. Timely detection of increasing churn rate is therefore fundamental to a startup’s continued success.
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