Understanding Revenue Churn

Hey, folks, Geoff Hetherington here. Today, I want to talk to you about Revenue Churn.

This is one of those sneaky Achilles' heels that trips up many businesses.

Now, in most businesses, when they look at client numbers, they think along the lines of, “We picked up 8 clients and lost 5, so we net 3. Great! We’re ahead!”

But this perspective only tells part of the story. Yes, from a purely headcount perspective, netting three new clients might sound like progress.

But the real question is, what’s the revenue impact?

It’s Not Just About Headcount – It’s About Revenue

Let me explain. If you’ve gained eight new clients but lost five, it’s quite possible to have fewer dollars coming in overall. Why? Because many businesses focus solely on the number of clients gained or lost, without considering the revenue that comes in with each.

In some cases, I’ve worked with businesses that watched their customer numbers go up throughout the year but noticed their revenue plateau or, worse, their profits drop.

The Problem: High-Revenue Clients Out, Low-Revenue Clients In

What’s going on in situations like these? It often comes down to client value – the specific amount each client brings to your bottom line.

If you’re replacing high-revenue clients with lower-revenue clients, you might be increasing headcount but decreasing profitability.

The new clients could be buying a different product mix, or maybe they’re more inclined towards lower-end offerings.

Think of it this way: if those five clients who left were generating a significant amount of revenue, and the eight clients who came in are only half as profitable, your business may be worse off financially despite growing in numbers.

Lifetime Value: The Measure That Matters

Here’s the crux of it – don’t just look at who’s coming and going. Look at their lifetime value. How much are these clients worth to your business over time?

When you focus only on client numbers, you’re missing the larger, more impactful metric: revenue churn. This is the true measure of your business's health.

When was the last time you took a good look at your churn numbers from a revenue perspective? If you’re like most, it’s probably been a while, and you may be in for a surprise.

A New Approach to Client Targeting

The good news is, that once you understand revenue churn, you can use it to inform your client acquisition strategies.

Maybe it’s time to re-evaluate the type of clients you’re targeting. If you’re losing high-revenue clients and gaining low-revenue ones, look at your sales processes, your messaging, and your product mix.

The goal isn’t just to keep numbers up—it’s to keep revenue and profitability up as well.

In today’s business world, simply “keeping things moving” isn’t enough. We need to be mindful of the quality and value of each client relationship.

So, ask yourself this: Is my business bringing in the clients that sustain my growth, or are we just filling spots with any client that comes along?

Take a close look at your revenue churn, and start setting yourself up for the kind of growth that actually pays.