Focus on your best customers
All things being equal, focusing on already expanding cohorts can have a larger effect than focusing on contracting cohorts. Negative churn is equivalent to expansion. So increasing expansion 1% is the equivalent of decreasing churn 1% in any month. However, if a cohort is expanding, that 1% increase ends up having a much larger impact over time than decreasing churn 1% in a contracting cohort.
In the above chart you have 2 cohorts that both start at $100. One is contracting and one is expanding. They both decrease churn by 1%. The effect in the first month is exactly the same, as you’d expect, since 1% of expansion is equivalent to 1% of negative churn.
However, over time the difference becomes much bigger for the expanding cohort. In this example it’s a $17 difference instead of a $7 difference.
The takeaway is that if you have 2 equivalent cohorts and one is expanding and one is churning you might get a bigger bang for your buck over time by focusing on the expanding ones.
