For any business that depends upon recurring revenue from in-contract customers, the customer retention rate is a strong predictor of long-term profitability. There is a reason for this. Today’s customers are increasingly more aware and have a very low barrier to switching their providers. With just one click of a button, they can cancel ongoing relationships and switch to a new provider with equal ease.
For recurring revenue businesses, this situation gets further complicated because of the very high costs of new customer acquisition. For example, in the home security and automation industry, while the recurring monthly revenue (RMR) lingers around $46, the cost of acquiring this same customer can rise to as high as $400. This essentially means that in the first year, there is hardly any profit from this customer. On top of that, if the customer cancels, that’s a double whammy because the company not only loses