It’s no secret that web hosting is hyper-competitive. Considering hosters frequently pay more than 12 months of revenue for customer acquisition, even the slightest reduction in churn can have a profound impact on profit. This begs the question: what’s the best way to reduce churn?
From what we witness on a daily basis among hosters that partner with Parallels, arguably the most significant way to reduce churn is to become a full service provider and bundle additional services. More importantly, get your customers to use multiple services. The more services a customer consumes from you, the stickier they are, and the less likely they will leave over time.
For example, let’s look at email. When Parallels analyzed the churn rates among web hosters for shared web hosting services, we find that the churn rates for small business customers without email are significantly higher than those with email, especially in year one!
In absolute terms, we are talking about differences in churn rates ranging from 1.25% per month to 3% per month. This metric directly impacts the lifetime value of your customer, which directly impacts the net profit generated, as illustrated below. In fact, if a hoster is not carefully managing churn, the cost of customer acquisition can prove to be financially disastrous.
And this is just with successfully bundling email! The improvement in churn rate continues as additional services and applications are offered.
Take away: cross-selling additional services is great if you can do it, but at a minimum, “cross-giving-away” services that customers will use will improve churn, the lifetime value of your customer, and your operational profit. Either way, the way to do this is to become a full service provider.
Next: best practices for hosters to launch new services.
About Joshua Beil
Joshua Beil (@joshbeil) is the Director of Market Strategy and Research for Parallels, the leading provider of automation and virtualization software to the web hosting community. Previously, Josh was the Director of Social Media & Technology at a Level 3 Communications [Nasdaq: LVLT] where he provided strategic and tactical sales support. Before that, Josh was CEO and cofounder of Skywave Broadband, Inc, the largest commercial WiFi service provider in Hawaii. He was named one of Pacific Business News' Forty Under 40 for 2006, and in 2005, he was named a High Tech Leader by the Pacific Technology Foundation. Before co-founding Skywave, Mr. Beil was VP of Research and Development for the market research boutique, Tier 1 Research, where he covered the Internet infrastructure sector as an analyst, and negotiated and sold subscriptions to Tier 1's research services. Josh has also previously served as the Senior Analyst for Exodus Communications as well as the internationally known market research firm, IDC. He holds a Certificate in E-Business from UCSC Extension, and he graduated with honors from the University of California at Santa Cruz with a major in Psychology.
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