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20VC: Why Seed is Systemically Broken | Why Pricing is Worse Than Ever and There is More Funding Than Ever | Benchmarks for Churn, Retention and Growth Rates - Good vs Great | Why Last Vintage for Private Equity Will Suck with Jason Lemkin
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
Acceptable Churn Rates for SMB and Enterprise
For enterprise companies, achieving a triple digit Net Revenue Retention (NRR) rate, ideally above 110%, is crucial. If an enterprise company with a million-dollar revenue does not have a triple-digit NRR, it indicates a significant issue. However, for small and medium businesses (SMBs), a monthly churn rate of 3% to 4% is considered acceptable due to factors like credit card expiry and business closures. In contrast, a churn rate higher than 3% to 4% per month suggests a business model that resembles consumer goods rather than software-as-a-service (SaaS). Maintaining a 100% retention rate is fundamental for software companies to sustain growth. Predictability in metrics like churn rate and growth is vital for business sustainability. The Last Four Months (L4M) model, averaging metrics over the past four months, is highly predictive of future growth and churn rates. While very small businesses often experience higher churn rates, efficient strategies or expert guidance can help overcome this challenge. Obscuring high churn rates with capital can lead to further issues, highlighting the importance of a solid retention strategy for sustained growth and success.
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