Is your retention "too good”?

And finding your cohort floor

Jan 14, 2025

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Counterintuitive Insight of the Day: You don’t want 100% retention.

Wait, what? CJ, have you lost your mind? Why wouldn’t I want to keep all my customers? Lay off the Miller Lites, my man!

I’d argue that if your retention is too high, especially in B2C subscription businesses, it might signal that you’re playing it too safe on acquisition (and leaving money on the table).

In B2C subscription businesses (including this newsletter!), some churn early on can actually be a good thing. A higher churn rate in the first few months often reflects that you’re experimenting with broader audiences, and increasing your chances of capturing long-term growth. Reid DeRamus, a growth expert from Hulu, HBO Max, Crunchyroll, and Substack, broke it down for me on the RTN podcast:

“It’s shocking, but sometimes metrics can be too good. At Substack, we’d see a writer with retention rates way above their peers and say, ‘Whoa, pump the brakes.’ If your retention is 30% higher than average, you’re likely marketing only to your core persona. That’s great—but you might be leaving peripheral audiences untapped. Sure, some will churn, but others will stick—and that’s where real revenue growth happens.”

What Reid is hitting on is if your retention rates are 10%, 20%, even 30% (!?!) higher than your peers, you’re probably only marketing towards you absolute core customer persona. And you might want to try to reach some adjacent audiences because some of them will probably pay.

While your retention may go down, your revenue will go up and it'll be higher than it is at the moment when you're just talking to your core customers. If I were to simplify:

Retention < Revenue < Lifetime Value

You are trying to maximize for the most revenue over ALL your customers’ lifetimes. You are not playing the game just for the sake of retention in and of itself. You are doing it to make the most amount of money possible, and retention is one of many signals.

Finding your cohort floor

It’s normal for churn to be highest in the first 30–90 days. But if customers are leaving after 10–12 months, you’ve got a bigger issue. That’s where the concept of finding your cohort floor comes in: the point at which churn stabilizes. Reid explained:

And so there's different parts of the curve, and when it stabilizes we would call that “the cohort floor”. It's when it kind of plateaus out and basically nobody's canceling. And if you look at different monthly cohorts, it's really valuable if you're elevating the cohort floor.
I remember at Hulu plus early days, it would level out around 20 to 25%. Once you got there, kind of held steady. And we were gradually getting that up toward 30%. And that would drive tremendous enterprise value because think about all the additional people that are going to keep paying you forever.

What you’re doing is locking in annuity streams. So you want to figure out how to MAINTAIN and ELEVATE your cohort floor.

Since you’ve already paid to acquire the customer, if you can pull up your cohort floor by, say, 5%, almost all of that will drop to the bottom line. That’s a game changer for your company’s profitability.

Here’s what it should look like if you are elevating each successive cohort’s floor, from my friend, and data analyst rockstar

Olga Berezovsky

TL;DR: You want to pull that shit up.

Different churn, different problems

But I’d be remise if I didn’t point out that keeping customers at day 28 is a very different bag of burritos than keeping them at day 280.

“That's a very different retention problem to try to solve than getting people to through month one into month two. So it's actually really interesting when you break out the different types of people and why they're cancelling and you do very different tactical things to work on retention.”

In the streaming world you run into problems when someone loves your shows but burns through the whole back catalogue in nine months. This person has been on your product for close to a year, but there’s no more content to watch. The solution would have been to green light the right show or go out and buy the rights to other shows to keep them around. That’s a fundamentally different, and solveable, problem, than someone churning in day 15 because they hate the content.

On the flip side, if you’re losing a lot of people in month one, which as we mentioned, all B2C products do, you may realize it’s because their free trial ended and you need to connect them with the value of your product faster. This is actually more of an onboarding problem than a retention problem at its core, as they were never really a “true” customer in the sense of the word.

Run the Numbers

Apple | Spotify | YouTube

Reid DeRamus, formerly of Hulu, Crunchyroll, HBO Max, and Substack, joined me to discuss B2C business models and growth strategies.

Nuances of price increases in B2C subscriptions—how they affect revenue growth, customer acquisition, and retention
How to communicate price increases to existing customers to avoid churn
The pros and cons of discounting
The paradox of "too healthy" metrics and why you should consider pairing your KPIs up.
Should OnlyFans acquire Substack?