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Netflix, Inc. (NFLX) Message Board

  • the_talented_mr_morgan the_talented_mr_morgan Jun 14, 2002 5:57 PM Flag

    Customer Churn vs. Customer Growth

    Per the S1:

    "For the quarter ended March 31, 2002, an average of approximately 7% of our total subscribers cancelled their subscriptions each month...we currently estimate the average churn rate over the lifetime of a new subscriber to be approximately 7% per month. This implies an estimated average subscriber lifetime of approximately 14 months."

    14 months per subscriber isn't that bad because this number is weighed heavily by those who cancel after only one month. Keep in mind Netflix offers the first month free and many who cancel use the service for only the free month.

    Also, keep in mind that although they are losing 84% of their customers each year, they are doubling their net customer count. This means that for every 1 customer they lose, they sign up and retain 3 customers.

    Customer counts:
    March 2000 = 156,000
    March 2001 = 303,000
    March 2002 = 603,000

    Sure "customer churn" made it's way to the "Risk Factors" section of the S1, and sure I believe that customer retention should be a priority, but I think the annual percentage increase in subscribers is even more relevant.

    And by the way, the only reason customer churn is an issue for Netflix is because they are a subscription business and churn is inherent to that type of revenue model. When was the last time you heard people talk about churn for Ebay or Amazon or Microsoft or Blockbuster? You don�t. It�s new, it�s a risk, focus on customer growth and as long as churn is less than 10% don�t worry about it.

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