At what point does churn rate inhibit growth and profit in a digital media business model? Both in the information services and SaaS industries, a churn rate over twenty percent is problematic for the business model. In both of these industries, sustainable profits exist at around ten percent churn. In controlled circulation of print media, a twenty percent churn rate would have been difficult to sustain. In digital media, the lifetime value of audience members is a key success factor to creating a profitable business model. This research note begins to explore the dynamics of the lifetime value of a digital audience.
In September of 2011, Scout Research began tracking several audiences on B2B publisher sites to understand the lifetime value of the audience. The goal of the analysis was to identify the churn rate and lifetime value of different segments of an audience. Our methodology looked at all unique visitors to the site in September, and we calculated the following for each of them:
- First day of visit, last day of visit, and total active lifetime in days
- Number of page views over lifetime
- Revenue contribution of each visitor based on display advertising revenue
Of particular interest, our analysis aimed to uncover the impact of abandoning the controlled circulation practice of print media for the anonymous visitor practice of digital media. The analysis focused on understanding the relative difference between anonymous or registered visitors, where registered visitors most closely represent the controlled circulation model.
The following infographic illustrates the average results across the audiences monitored.
In the first month, over eighty percent of anonymous users churned and were not seen again during the full ten-month analysis. In the end, ninety-nine percent of the anonymous audience churned, and while larger in number compared to registered visitors at the beginning, they were smaller at the end. The average lifetime of an anonymous user was 17.5 days compared to 125.2 days for a registered user. And the average lifetime value of an anonymous users was more than seventeen times smaller at $1.13 compared to $19.52 for registered users.
The Implication
High churn rates in business models are not models of success. From airlines to coffee shops to information services, loyalty and low churn rates have been the key to success. Digital media publishers need to know their churn rates and establish goals to reduce them, which will in turn grow lifetime value of an audience, and ultimately, the profitability of the business model.
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