Being Realistic About Website Numbers

This is short and simple, but I think sometimes overlooked when business forecasts are put together.

You have a subscription model website, where people sign up and pay you money on an ongoing basis – usually it's monthly.

You're delivering a service, maybe, or an online tool or whatever, that you feel people will pay for.

You make an estimate of the number of new customers you might sign up on a weekly basis, and then you create a kind of straight line graph that shows ever increasing revenue over time.

However, if you haven't taken customer retention into account your graph will be completely meaningless, because retention is as important a figure as new sales.

Let's say that your site is signing up 2,000 paying customers per week, and to keep the numbers easy, let's assume it does that from day one, and just keeps doing that every week for the first year.

By the end of the year, you will have signed up 2,000 x 52 = 104,000 customers. That's not bad for a year, if you're getting £10 per month off them, for example.

However, look what happens if your customers stay with you for six months on average, which is probably not a bad retention rate for a subscription model.

When the six month point has been reached, your cancellation rate will now be the same as your signup rate, at 2,000 per week.

Your customer base will now flatten out at 2,000 x 26 = 52,000 customers, and that is where it is likely to stay for some considerable time, with your marketing costs that were originally growing the business at a great rate now going towards stemming the flow of cancelling customers and leaving you with zero growth.

Oh, and if your conversion rate between site visitors and customers is 1%, which is a not untypical value, and the cost per thousand clicks is £250, then to get 2,000 customers per week you need 200,000 people to hit your site, which is 200 x £250 = £50,000 per week, or £2.6m per year just to keep your customer base flat at 52,000 customers.

That's not to say you can't run a business on those figures, but retention is often given little attention in business plans but yet can have a major impact on growth.