If I told you a B2B business had 90% customer churn, would you invest?
What if I told you they gross $28B and have a 10-year CAGR of 16%?
So how can such a strong business have 90% customer churn?
Here’s a bit more info...
The business is PayPal
I'm talking about their merchant side (B2B), around 90% of business account signups are inactive after 1 year.*
The distribution of revenue in their customer base follows a power law, where the majority of their revenue comes from their most valuable signups, the top 10%. A small merchant might be worth $500 per year to PayPal, but a large one could be worth $5M.
While they have high customer churn, their retention curves eventually flatten.They probably have negative revenue churn, meaning old cohorts become more valuable over time as their businesses grow.
What does this mean for you?
If you have value concentration in your customer base (e.g. 80% of revenue from 20% of customers), focus on revenue retention rather than customer numbers.
Your absolute churn rate matters a lot less than the shape of the curves. If your cohorts eventually reach zero value, you can't compound growth. If they flatten at any number greater than zero, even a measly 10%, you can stack them up and build a strong business.
Simple next steps
Make sure you’re using the right metrics to track churn. (A metrics-driven culture won’t matter if you track the wrong metrics.)
Look at your long-term retained customers, figure out what's different about them. (e.g. different use case, customer type or acquisition channel?). Next, focus your marketing efforts on finding more just like them.
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* This data is accurate to the best of my recollection, though I left PayPal in 2015.