Decrease churn, increase conversions or hire a sales team?

Alan and I are building a financial dashboard for Treehouse and the findings have been fascinating. If you only have time to focus on one of these three for your web app, which should you tackle?

  1. Decreasing the number of people that cancel (churn)?
  2. Increasing your conversion rate?
  3. Hiring a sales team?

Net Profit

A graph showing that hiring a sales team has the largest effect on Net Profit.

Cash Balance

A graph showing that increasing conversions by 1% has the largest effect on Cash Balance.

Conclusion

These results are obviously specific to Treehouse (aka Think Vitamin Membership) but it’s fascinating to see that increasing conversions by 1% has the biggest effect (huge!) on Cash Balance, but hiring a (successful) sales team has the largest long-term effect on Net Profit. Given a few more months, the Cash Balance would also be best-effected by hiring a Sales Team as well.

To clarify, the Sales Team will be selling large group memberships and their goal is 2 x 100 Member accounts per month and we’re giving them three months to spin up to 100%.

If you’ve been working on improving metrics on your web app, please share in the comments.

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Comments

31 comments on “Decrease churn, increase conversions or hire a sales team?

  1. Increasing conversion rate is something that I am looking at at the moment for a number of e-commerce sites. It can be a bit of a minefield and a job in itself. But it’s definitely worthwhile doing, particularly for a developer like me.

    I think all developers should take a look into metrics such as conversion rates, particularly if you’re running AdWords campaigns too.

  2. Increasing conversion rate is something that I am looking at at the moment for a number of e-commerce sites. It can be a bit of a minefield and a job in itself. But it’s definitely worthwhile doing, particularly for a developer like me.

    I think all developers should take a look into metrics such as conversion rates, particularly if you’re running AdWords campaigns too.

  3. My first guess before looking at the graphs would have been decreasing churn since the best way to get new customers is to keep your current ones. Thanks for sharing Ryan.

  4. Another invaluable insight into the inner workings of a tech startup.
    Intriguing to see how @ryancarson:twitter will go about recruiting a sales team.

  5. I notice that the graphs show that a 2 sales person team selling 200 member accounts has a way higher impact, was this negated by the ability to sell accounts of that size regularly, was 100 member accounts a more reasonable target?

  6. I notice that the graphs show that a 2 sales person team selling 200 member accounts has a way higher impact, was this negated by the ability to sell accounts of that size regularly, was 100 member accounts a more reasonable target?

  7. Here in the office, we’re wondering whether the sales team will be able to perform consistently; in the same way a focus on increasing conversions could.

    Will the sales team be able to maintain exponential growth?

  8. Here in the office, we’re wondering whether the sales team will be able to perform consistently; in the same way a focus on increasing conversions could.

    Will the sales team be able to maintain exponential growth?

    • The growth is exponential because we have recurring revenue, not because the sales team is selling at an exponential rate. It’s reasonable to assume a consistent rate of sales.

  9. Hey Ryan,

    thanks for the insight.

    I would like to add a  note about increasing conversion rate. To my best practical knowledge stressful  e-commerce sites have conversion rate about 2%. They see it in their sweetest dreams to increase it by 1%. That means +50% in sales!

  10. Hey Ryan,

    thanks for the insight.

    I would like to add a  note about increasing conversion rate. To my best practical knowledge stressful  e-commerce sites have conversion rate about 2%. They see it in their sweetest dreams to increase it by 1%. That means +50% in sales!

  11. A thought provoking look at running under a subscription model, but a couple of things jump out at me:

     (1) Market saturation – assuming that subscriptions can continue linearly seems wrong in the long run. I don’t know how long you think it will take to reach that point though.

     (2) Inflation – What do things look like in real terms? Does the initial profitability of conversion rate and churn improvements pay off better once you’ve considered the value of reinvested capital?

  12. A thought provoking look at running under a subscription model, but a couple of things jump out at me:

     (1) Market saturation – assuming that subscriptions can continue linearly seems wrong in the long run. I don’t know how long you think it will take to reach that point though.

     (2) Inflation – What do things look like in real terms? Does the initial profitability of conversion rate and churn improvements pay off better once you’ve considered the value of reinvested capital?

  13. Adding a sales team makes a lot of sense. Groupon has a very large team of sales people in addition to their online efforts. The results have been no less than spectacular. Many analysts call them the fast growing company — ever! Clearly, sales people are helping them drive phenomenal results.

  14. Hi Ryan,

    Very interesting observations. I tend to agree with your conclusions, increasing conversion rates impacts both short term and long term profitability (extend customer life-time value)

    Initially, it’s easier to improve conversion rates (on small numbers), however, over time, this number can really increase forever. At that stage it’s important to focus on keeping CAC ration at the same rate and get more leads in. This is where churn impacts dramatically the long term viability of the business. 

    I’ve blogged a bit about this here: http://blog.totango.com/2011/08/part-ii-making-the-most-of-your-metrics/

    Cheers,
    Guy

  15. Hi Ryan,

    Very interesting observations. I tend to agree with your conclusions, increasing conversion rates impacts both short term and long term profitability (extend customer life-time value)

    Initially, it’s easier to improve conversion rates (on small numbers), however, over time, this number can really increase forever. At that stage it’s important to focus on keeping CAC ration at the same rate and get more leads in. This is where churn impacts dramatically the long term viability of the business. 

    I’ve blogged a bit about this here: http://blog.totango.com/2011/08/part-ii-making-the-most-of-your-metrics/

    Cheers,
    Guy

  16. Thanks Ryan – interesting stuff. Did you factor in the costs of recruiting and maintaining a sales team? Or does it just take into account their salaries and commission? Like you said, the results are specific to Treehouse and not necessarily applicable to all subscription sites. I think some SaaS products probably do much better without the cost of a sales team.

    • I don’t think we’ll have a recruitment cost problem, as our benefits are so attractive (we never spend money on recruitment). Also, there really isn’t a maintenance cost for us either. I’ve included commission though.

      • It would be interesting to hear how many hours go into finding the sales team. I don’t know if you attach a cost to your time but, if you did, the recruitment cost would not be free. You then also have the cost of the time spent on onboarding, training, monitoring and replacing sales people when they leave. It all takes plenty of time.