Ryan
writes on November 30, 2006
In case you missed it over on Bare Naked App, we’re in the process of selling DropSend. I’ve decided to move the discussion over here at Carsonified.
I thought it would be useful to share some of the questions we’re getting about the app. This way, if you want to sell your app, you can research these things before you sell:
- What is the churn rate?
- Are there any patents held by Carson Systems that relate to DropSend? Are they included in the sale?
- In your opinion, how long will it take for a developer/product manager on our side to ramp up with the application so as to be able to add features, debug, trouble shoot, etc.?
- How do you handle security of files during transfer and storage? Do you manage SLA’s at all with your SMB clients?
- I have looked up traffic figures on Alexa for DropSend, do you use a different tool?
- How goes the process with the other two interested parties?
DropSend Churn Rate
The most interesting figures are in our Churn Rate. Note: Churn rate is defined as what percentage of your customers cancel the service per month.
Okay, I’m going to be controversial here and say that I don’t think churn rate, no matter how you define it is of use in a case like this.
The argument goes that with a service like Dropsend, many people would have a short term use for it, and after that would probably not use it again. Therefore your churn rate is high naturally, but it doesn’t mean that customers are unhappy with the service. Just that they have had their use and moved on, as it where!
To be honest, I was surprised at the low numbers though. I had honestly thought that Dropsend would get a much better subscription rate than this. The advantage though is that there is a whole lot of room for improvement, as in my testing, Dropsend was by far the best of the bunch.
As for the value, at the moment this would surely be based on the revenue, with a healthy factor for potential. My guess would be that the revenue is fairly low, but potential is high. I’m not sure I agree with the x25 figure, but I would say x10 to 15 would be reasonable.
Thanks for the suggestion folks. I’ll probably publish another entry with updated figures.
Thanks again!
Ryan,
Don’t publish these numbers as your “churn rate” lest you confuse others. Churn rate is what you accurately described as “what percentage of your customers cancel the service per month.” which would be cancels/# customers, but the numbers you calculated are cancels/signups. Use the 1.2% instead.
Then, show your growth rate number to show that you are signing up folks faster than they are leaving.
I worked at web design firm hosting over 25,000 paying accounts and we always measured churn the way Alex G. suggested.
‘# I have looked up traffic figures on Alexa for DropSend, do you use a different tool?’
I see you are using Google Analytics. How do you find that and will you be publishing your numbers from this? I find it interesting people quoting Alexa numbers all over the web but having true numbers from a tagging solution such as GA means a lot more.
Thanks,
Glen
Hi Ryan
I see your point about the leaky bucket but the size of the bucket is important too! A dribble out of a swimming pool doesn’t really matter. So your 1.2% figure sounds pretty good, especially when you are throwing 7 buckets in, for every one leaked (err. enough bucket metaphors)
Bill
Interesting stuff, would have never of thought to include numbers such as these!
Well, if you want to measure it that way, our churn rate for our Basic plan is only 1.2%
Actually, I’ve been involved in several transactions for web hosts, and the standard metric for churn is number lost per month divided by the total number of accounts + any new accounts added per month. So if you have 90 accounts and in a month, you add 10 and lose 10, your churn rate would be 10%.
Personally, I would be extremely worried buying a business where a churn rate was over 5% across most accounts per month. The deals I’ve been in, the churn rates were more on the order of 1-2%.
It’s the most relevant number, I believe. This helps you make sure you’re not having a “Leaky Bucket” problem.
Your churn numbers are deleted accounts per month divided by new accounts per month. Is that really what you want? Wouldn’t deleted accounts per month divided by total accounts be a more useful number?