leave with: a fixed-cohort view of retention, value and delivery cost
allow: 30 minutes
identify what actually repeats
separate contracted revenue, subscriptions, recurring usage and one-off projects. explain what a customer has committed to and what can change. a renewal option is different from a binding commitment; an invoice is different from cash received.
one-off delivery can support a useful business. it is less aligned with our current venture and investment focus when each sale requires a substantially new project and there is no credible path to continuing customer value and recurring revenue.
look at customers over the same period
choose a defined customer group and reporting period. record customers at the start, those retained, those lost and new customers separately. then look at revenue from the original group, distinguishing renewals, expansion and contraction. avoid changing the group or period halfway through the comparison.
for an early startup, the numbers may be small. show them honestly and explain their limits. a few customers renewing can be a useful observation without establishing dependable retention across a wider market.
understand the work behind the revenue
- what must the team do each time another customer joins?
- which costs increase with usage, support or service delivery?
- how much of the product is repeatable, and how much is bespoke work?
- does one customer or channel account for a large share of income?
- how long does payment take, and what working capital is needed?
- what would happen if a major customer reduced usage or did not renew?
keep the comparison honest
consider a hypothetical service with ten customers at the start of a quarter. eight remain at the end and four new customers join. the larger closing customer count does not mean all original customers stayed. explain both acquisition and retention, then examine the value and cost of each relationship.
this is an illustration, not a lab2sky investment result. the useful question is why customers continued, why others left and whether the business can deliver the promised value economically.
check the outcome alongside the renewal
renewal does not, by itself, prove a positive impact. define what improves for customers or other affected people, how it is measured and what adverse effects could grow alongside the business. distinguish reach, use and outcomes.
at the build stage these are hypotheses to test. for a series a assessment, we expect dated operating evidence. our interest is in revenue that can sustain the work of delivering a substantiated benefit.
growth can conceal a retention problem
worked example · illustrative
consider a fictional business with ten customers at the beginning of a quarter. eight remain and four new ones join: twelve closing customers, but 80% retention of the original customers. those starting customers generated r100,000 in monthly recurring revenue. churn of r10,000 and contraction of r5,000 leave 85% gross revenue retention. r20,000 of expansion from the same starting group lifts net revenue retention to 105%.
what this changes: new customers are excluded from both revenue-retention calculations. net growth does not erase the lost revenue or explain why customers left. use a consistent period, currency and definition; then examine concentration, costs and the reasons behind the numbers.
metric reference: stripe: gross and net revenue retention ↗
put it to work
allow: 30 minutes
leave with: a fixed-cohort view of retention, value and delivery cost
- choose a start and end date and freeze the starting customer group. record retained, lost and new customers separately.
- reconcile the original group's recurring revenue through churn, contraction and expansion. show one-off work separately.
- review why customers stayed or left, using dated evidence where available. distinguish a hypothesis from a customer explanation.
- compare delivery effort and cost across customers. check whether a renewal also reflects the intended customer outcome.
these are lab2sky’s working questions and assessment approach. examples are illustrative unless explicitly identified otherwise. how we write our guides