Plain words
The words people use when they talk about keeping customers
Advisors, buyers, bankers and software vendors all have their own words for whether a business keeps its customers. Most of them describe things you already know about your business. Here they are, in the order you tend to run into them, with what each one means and what to do about it.
Customer retention
Customer retention is the share of a business's customers who are still customers after a given period, usually a year.
Plain words: Of the people who paid you a year ago, how many are still paying you? That number, and whether it's going up or down, tells you more about the health of a business than almost anything else on the P&L.
→ On this site: How do I know if my retention is actually bad?Find the leaks
Customer churn
Customer churn is the share of customers a business loses over a period; it is the inverse of customer retention, so 85% retention means 15% churn.
Plain words: Churn is the leak in the bucket. If you keep 85 out of 100 customers in a year, your churn is 15%. The word gets used loosely, so when someone quotes a churn number, ask whether they mean customers or dollars, and over what period.
→ On this site: Find the leaks
Renewal rate
Renewal rate is the share of contracts or subscriptions that come up for renewal in a period and are renewed.
Plain words: Of the agreements that expired this year, how many signed again? It's the version of retention that matters for any business on contracts, retainers or memberships. The first renewal is usually the one to watch: a customer who signs a second time is far more likely to sign a third.
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Repeat purchase rate
Repeat purchase rate is the share of customers who buy more than once within a period, used in place of a renewal rate by businesses that sell on orders rather than contracts.
Plain words: If customers don't sign anything, you can't count renewals, so you count whether they came back. The useful version compares each customer to their own habit: a customer who usually orders every six weeks and hasn't in four months has, for practical purposes, left.
→ On this site: Find the leaks
Revenue churn
Revenue churn is the share of recurring revenue a business loses over a period from customers who leave or spend less.
Plain words: Losing customers and losing revenue aren't the same thing. Lose ten small accounts and your customer churn looks bad while your revenue barely moves; lose one big one and the reverse. Buyers and lenders look at revenue churn first, because it's the one that hits the bank account.
→ On this site: We're getting ready to sell or raise money. Is it too late?
Gross revenue retention (GRR)
Gross revenue retention is the share of a period's starting recurring revenue still coming in from those same customers at the end of the period, after cancellations and reductions and before any growth from them; it cannot exceed 100%.
Plain words: Take the customers you had on January 1 and the revenue they were paying. On December 31, how much of that same revenue is still coming in from them? Ignore anything extra they bought. GRR measures only what you kept, which is why it's the number a careful buyer trusts most.
→ On this site: We're getting ready to sell or raise money. Is it too late?
Net revenue retention (NRR)
Net revenue retention is gross revenue retention plus the additional revenue from those same customers buying more; it can exceed 100% when growth from existing customers outweighs what was lost.
Plain words: Same starting customers, same year, but this time count what they added as well as what they dropped. If NRR is over 100%, your existing customers grew your business on their own before you sold to anyone new. A high NRR sitting on top of a low GRR means you're replacing lost customers with bigger orders from the ones who stayed, which works until it doesn't.
→ On this site: Grow them
Expansion revenue
Expansion revenue is additional revenue from an existing customer buying more, a larger version, or something new.
Plain words: Upsell and cross-sell are the sales words for it. It's the cheapest revenue a business has, because the customer already trusts you and nobody had to find them.
→ On this site: Grow them
Customer concentration
Customer concentration is the share of total revenue that comes from a business's largest customer or small group of customers.
Plain words: If one customer is 30% of your revenue, your business has a 30% problem the day they leave. Buyers and lenders discount a business for this, sometimes heavily. The fix is slow, which is one more reason to start before you need the number to look good.
→ On this site: We're getting ready to sell or raise money. Is it too late?
Customer lifetime value (LTV)
Customer lifetime value is the total profit a business expects from a customer over the whole time they remain a customer.
Plain words: Roughly, what a customer pays you per year, times how many years they stay, less what it costs to serve them. Retention is the lever that moves it most: a customer who stays five years instead of three is worth close to twice as much, and you didn't spend a dollar acquiring them again.
→ On this site: Grow them
Customer acquisition cost (CAC)
Customer acquisition cost is the total sales and marketing spend in a period divided by the number of new customers won in that period.
Plain words: What it costs you to land one new customer, all in. It's on this list because it's the number retention is measured against. Every customer who leaves has to be replaced at this price before you've grown at all.
→ On this site: Growth isn't new clients
Customer success
Customer success is the function in a business responsible for making sure customers get the result they bought, stay, and buy more; it is proactive, where customer service is reactive.
Plain words: Customer service answers the phone when something's wrong. Customer success calls before it goes wrong. In a larger company it's a department. In most owner-run or growth stage businesses it's usually nobody's job, which is the problem.
→ On this site: Isn't this just customer service?Retention needs a clockmaster
Fractional customer success
Fractional customer success is a senior customer success or retention lead working inside a business part-time, under contract, instead of as a full-time hire.
Plain words: You get the experience of someone who has run retention before, for the days a week your business needs, without the salary of someone who does it full-time. Done well, the fractional person builds the process and the people and then steps back.
→ On this site: How it worksWhat does it cost?
Onboarding
Onboarding is the structured period after a sale in which a new customer is set up, trained, and brought to their first result.
Plain words: The first ninety days decide most renewals. A customer who gets to the thing they bought you for quickly tends to stay; one who's left to figure it out tends to drift. If nearly half your new customers don't come back for a second year, onboarding is the first place to look.
At-risk customer
An at-risk customer is an existing customer showing signs they are likely to leave: declining usage or orders, unanswered check-ins, a change of contact, a complaint that went nowhere, or silence from an account that used to be engaged.
Plain words: Most customers signal before they go. The signals are easy to miss when nobody is assigned to look, and the quiet account is the one most often missed. A simple list, reviewed every two weeks, catches most of them.
→ On this site: The dog that didn't barkFix them
Quality of earnings (QoE)
A quality of earnings report is an independent review of a business's financials, commissioned during a sale or financing, that tests how reliable and repeatable its reported earnings are.
Plain words: When a buyer is serious, they hire a financial professional to pull your numbers apart. Customer retention, revenue churn and customer concentration are near the top of the list, because they decide how much of this year's revenue a buyer can count on next year. A business that can show those numbers, and show them improving, gets a better price and an easier process.
→ On this site: We're getting ready to sell or raise money. Is it too late?