We hear all the time that it's bad if churn increases, right?

Well… no. Not always, at least.

If you’re in your first year of running a SaaS business, high churn can be a terrible sign, a positive sign, or both at the same time!

Here’s why…

First, take a look at this @baremetrics chart of (user) churn for our first 7 months of running @SparkLoopHQ.

That churn spike in the middle looks nasty, right?

Wrong! That’s *exactly* what churn should look like for a healthy new SaaS product...

Confused?

Here’s what’s going on:

When you start acquiring customers, you'll make two (almost unavoidable) mistakes...

1) You’ll sell to people (eg friends) who buy to support you, not because they need the product, and

2) You won’t fully understand who your ideal customer is yet.

So you’ll sell to a lot of customers who aren’t a good fit for your product (maybe tempted by launch discounts).

If you know what you’re doing, this'll probably happen for the first month or two.

As you talk to customers and see how they use your product, you’ll...

- refine your target customer,
- change your pricing,
- and improve your product

So churn should start to decrease, right?

Wrong!

If you’re doing things right, that churn is actually going to *climb*.

Why?

Because churn has a delay.

It doesn’t reflect what your company does *today*, but what you did months ago.

So churn should keep rising...

All those friends who were trying to help? They’ll quietly churn in months 3-4.

Same thing (if you’re lucky) for those ‘bad fit’ customers.

After that - if you’re on the right track - churn will start to decline.

So how do you make sure you’re on the right track if you can’t rely on churn?

Well, when I coach early stage founders, I have them split customers into two groups…

a) customers who - based on what you know today - are a good fit

b) the rest

Then, you pay *a lot* of attention to the ‘good fit’ group and *zero* to churn in ‘the rest’ group.

Churn in the 'good fit' group is a real danger sign...

It means something is probably wrong with your product or understanding of your customers. And you need to fix it ASAP.

And that’s pretty much it…

As long as you can tell “good” churn from “bad” churn (and act accordingly), you don’t need to be worried if your churn chart keeps rising.

You can watch it happen with a big smile on your face!