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Give it a rest. It's a "hypothetical situation", clearing indicated by the IF at the start of the sentence. I don't think you're adding anything here by labouring this point. I'd say it's not an inaccurate statement, just that the obvious effect of new customers might be left as an exercise to the reader.
However, considering that Xero only really had a net gain of 4000 customers in the US over the last six months, which should be a big growth market for them, I would consider 4000 new customers much closer to 0 new customers than I would like. It's basically no new customers. It's 50% annual growth when I wouldn't be surprised if the UK grows 200% this year.
And, 4.2% monthly churn (which might be described as 40% annual churn but you don't seem to like that) doesn't sound good at all, especially compared to the 1% churn in NZ, AU and UK.
Just on those churn rates, which are very low for NZ, Aust and UK. I wonder what percentage of those customers that do leave Xero leave because they're going out of business (the failure rate of SMEs being reasonably significant I would imagine) and how many leave due to dissatisfaction with the product or a preference for another service. Making some pretty simple assumptions, it does seem like the retention rates are impressive in those markets. Here's hoping the U.S. trends that way too...
Mikey, I don't have no problem with saying the annual churn rate as 40.2%, I never suggested or stated I do (it is after all a correct measure).
My post was largely in response to what I had read on this thread, where many people were clearly confused about what churn rates are, how to convert a monthly rate to an annual rate, and more importantly what these numbers actually mean. As you must surely appreciate, many on this thread had posted incorrect information. My interpretation is that these threads are for sharing information and/or learning. If info posted is wrong or unclear then typically neither will be achieved.
That being the case, I'm still interested in the way you calculated new customers vs costumers lost for the period as there is a bit of discrepancy between my calculations and yours and winners.
Just heard a Xero ad on the WTF with Marc Maron podcast one of the most popular podcasts in the world.
discl. do not hold
Here is what Rod Drury had to say about a year ago in regards to churn:
@Graeme churn is around a percent a month. All our numbers are net of churn. Our churn rate is less than the death rate of businesses and we of course monitor churn closely. We don’t see people going anywhere else and the main reasons for leaving ‘not ready for accounting’ or ‘out of business’.
The reason our churn numbers are low are
1. We are conservative about counting customers. We only count them when we have billing details and by then our customers are pretty committed.
2. Accounting software is sticky. So customers are hard won but when we have them they tend to stay if you treat them well.
You could argue that businesses with online accounting are more likely to survive on our numbers. That would be a useful study.
It’s very interesting to look at customers now as our numbers have become significant. As a pure-play SaaS accounting vendor our Customers, Revenue and therefore ARPU are clear to see. In MYOB’s recent update they did not disclose online customers or revenue. Intuit continues to obfuscate their QBO count and revenue in their reporting.
We challenge them to come clean with their numbers. It’s important for the industry to know where the customers are and who’s strategy and platform are working as their industry makes their investments.
Well, Intuit numbers are out as for every quarter...
QBO subscribers are at 739k up by 56k (slightly down from previous two quarters, 43% up y-o-y). That's only twice as many compared to the leading cloud accounting provider Xero.
Of those, 103k are non-US subscribers. Less than five times of Xero's US customers.
Revenue for this quarter came in 50m higher than analysts estimated. Xero reported 50m revenue for the past 6months.
This is clearly a big ship that can't be turned around.
In other news, Bain is planning a 2.6B IPO for MYOB. I checked the calendar and it's not April 1.
http://sixteenventures.com/saas-churn-rate
Acceptable Churn Rate
In line with my experience and as I cited in my Sandhill.com article, Bessemer Venture Partners says an acceptable churn rate is in the 5 – 7% range ANNUALLY, depending upon whether you measure customers or revenue.
1% monthly churn is 12-12.5% annual churn. 4% monthly churn is ~39% annual churn.
yeah but i'd take it with a grain of salt - xero make a good point that their churn is equal to the death rate of young businesses which makes sense. Xero are also growing revenue by 80% and thats no mean feat (revenue would be growing by even more with less churn).
The US churn would worry me - but I guess thats the reason they acted quickly to excise the tumour.
The only thing that bothers me, and this is consistent with all listed tech companies on the nzx, is the way they provide misleading news and outputs - eg why give monthly churn rather than annual churn if not because monthly churn looks very very small and to the uninformed punter would seem inconsequential.
I dont know all too much about churn but intuitively I would expect that any SAAS company with a lot of small businesses as clients would have a higher than usual churn, as young companies typically die off at around 15% - 20% per year (in the US at least).