10 Rules for Defining Churn with ForgeRock and Solarwinds | SaaStr Software Community

Thank you very much, great to be here.

Likewise, yeah, excited to be talking about this topic. You know, Andrew and I have been talking about this for at least the last couple of months or so, and it's one of those topics that you think you know a lot about it, but the more you talk about it, the more, the more you learn. So we're going to spend the next half an hour or so, 40 minutes, taking you through some of our observations on, on how to look at churn and define churn. I'm very much looking for your kind of participation in terms of the Q&A at the end, really interested to hear your thoughts and ideas. I should also point out that I have 3 young boys under the age of 10 at home, which is why I have my virtual background on, so I'm hoping they will keep us— avoid coming in and photobombing me. So just to kick things off, when we think about how to grow the business, how to grow your subscription business, it really comes down to 2 simple drivers. There's really only 2 ways that you can grow ARR as a SaaS business. You can reduce churn or you can grow new ARR. That's it. And despite that, there isn't much clarity once you really get into the weeds of exactly how to define churn. There's lots of different ways of looking at it. And what we've showed here on this first slide is just a way of kind of visualizing how to explain the different levers in terms of what goes into churn and growing new ARR. You start on the left-hand side with what we call the starting ARR. So that comprises what's already committed in terms of a multi-year contract. So say I've signed a 3-year contract with a customer, customer signs a 3-year contract with me. This would be maybe the second year of their 3-year contract. So effectively, it's it's not really up for renewals. It's almost guaranteed to come in for next year from an ARR perspective. And then we have everything else, everything else that has a subscription end date that's due or available to renew in the coming time period. Churn is measured off against that starting ARR, which gets you down to what we call the renewal ARR. We then add on to that any kind of incremental new ARR, and that has two main components. It either comes from existing customers or it comes from new logos. Within existing customers, that's typically upsell or cross-sell. There's also this thing called a renewal uplift, which we track and measure here at FourDrok, where if you have a renewal renewal of, let's say, $100,000, if there's a cost of living adjustment and that grows to, let's say, $102,000, then that uplift would typically get calculated in terms of our new ARR. So renewal ARR plus the new ARR gives you the ending ARR. Difference between your beginning ARR and your ending ARR is that magic number, that net ARR and growth in ARR. That's probably the most important measure when you're thinking about growth for any subscription company or SaaS company.

Yeah, and I think a lot of companies look at, obviously, what the end goal is, I think today it's exciting to talk about what are all the underlying paths that you can get to the end goal, as we talk about, you know, some of the best practices for measuring churn. But complete agreement, there's two ways to get there: increasing sales and reducing churn.

Yes, and I remember at our annual kickoff this year, that was some of the mantras across all the different teams, was to think about, okay, how do I impact those two levers? What am I doing to Grow new ARR, what am I doing to reduce churn? Kind of keeps it simple, keeps it focused, and helps to drive customer lifetime value. Okay, so let's jump into some of the details. I've been pulling together with Andrew's help this idea of 10 rules to get us started. This is SaaStr after all. And we're gonna start to kind of go into some of these different rules and break them down. But yeah, at its simplest level, churn is like this bucket on the left-hand side. You know, you're filling it up with new ARR, new customers, new expansion sales on the left-hand side, yeah, As you grow relationships over time, that water level rises, and then churn is what falls out the bottom. You know, you don't want to lose customers, you don't want to lose ARR, you're really trying to maximize the value of customers over time. And so that's a very simple concept. It starts to get much more complicated once you get down into actually thinking about what it really means, and there's all sorts of corner cases. Both Andrew and I look after renewals as part of our jobs at our company, and you know, we were sharing quite a few different kind of war stories around, have you come across this situation or that situation, and it's, um, It's interesting because it's a concept that's really, really simple at a high level. As soon as you go kind of down below the water, it starts to get— there's lots of different ways of interpreting things.

Yeah, absolutely. And I would add to that that, you know, as we get into it and certainly as people listen to the things that we're talking about, it's all about translating these best practices and measurements into your existing business and maybe perhaps even better looking at your business a little bit differently based off of some of the examples and feedback that we get today.

That's right, that's a really good point, Andrea. I mean, what I'd love to do is we go through these different 10, 10 different rules. As you're listening and as you're thinking, if you've come across ideas or areas where, where you have questions in terms of how we should look at churn, how we should think about churn, I'd love to hear about those. We'd both love to hear about those at the end of the presentation and see if we can help understand them. Okay, so the first one starts with what's the right churn metric that we should be looking at? And its highest level, really, you can look at this in terms of how many customers are we losing, so customer churn or logo churn, or how much ARR, annual recurring revenue, are we losing, or ARR churn. From a customer churn versus ARR churn perspective, it's interesting to look at both. Obviously, you know, losing customers is not good, is not a healthy sign of a business, and you want to make sure you're managing and measuring that and trying to get in front of that. And if customers are leaving you, then is leaving you. But it's also important to look at the ARR side as well. Larger customers tend to be a little bit more sticky than smaller customers. So what we've tend to found is that our customer churn rate is sometimes a little bit higher than our ARR churn rate, 'cause it has this longer tail of smaller customers. Perhaps they bought a solution that wasn't quite right for their needs and they've moved on to something else. So we look at both, but we would probably prioritize this focus in on ARR churn. And just to make things more complicated, you can take this concept of ARR churn and look at it in lots of different ways. We've got this idea of a gross churn rate, which is really saying, well, how much ARR have we lost and how does that compare to what we had in our beginning ARR? If you remember that initial slide, the starting ARR had what was available to renew and the multi-year contracts piece. So that would be as a total of all of that. And that's useful and that's often used in the industry to sort of compare and contrast. Typically anything under about a 10% gross churn rate is pretty good. Anything under about 5% gross churn rate is fantastic. And it's definitely a very useful indicator. There's also this concept of product churn. If you're running a product team, it's really helpful to understand if your product's being used or if your customers are removing products. They may be replacing those products with other products, which means we haven't lost the customer, we haven't lost the revenue, but it's useful, I think, to really understand and look at product churn on a product level so you can use that to inform product management decisions. And then there's a final one at the bottom which we call available to renew churn. It's probably the most useful when you're really trying to understand the true business dynamics. So this is basically going back to that first slide. It says, of what we consider to be available to renew, how much of that actually renewed? So because it doesn't have the multi-year contracts piece, which is included in the gross churn, it tends to be a slightly higher rate than your gross churn rate. And it tells you different things about the underlying business.

Yeah, and that's a really good point.

Which one have you been using?

Well, I think it's a really great point because there are, there are things in every business that can mask any one of these metrics. So the ability to actually look at them as they're intended in our perpetual business, we use the available to renew. And we normalize things like FS, FX impact and price increases, because it's really important to me to ensure that we look at the picture of what's available to renew and what we're renewing against. That. And that's what I use as the baseline metric to measure the team. In our SaaS and subscription models, we do it a little bit differently. But I do think no matter what the business, no matter how many products folks have to offer in their business model, you pick a mainline number that you want to get to, and all the others have to be considered and defined in order to holistically move the business forward.

That's great, that's a really good point, Andrea. I think, you know, getting that right metric is so important, not just for understanding dynamics, but also trying to get in front of the risk. You know, you can't really improve something if you can't measure it, you can't measure it if you can't define it, so this really starts with that clarity of definition. And I know we'll come on to this a little bit later, but you get pretty quickly then to, well, if this is what's important, how do we align sales behaviors and teams behaviors around these measures? And therefore, how should we structure sales compensation? So I know we'll get on to that shortly. Okay, so if we jump into a few, a few of them, of the more sort of nitty-gritty details. One which can definitely seem quite confusing to begin with is this concept of timing, because we have this idea that we can book a renewal in a particular period, but it may be related to a very different period. It may be related to a period that like last quarter because the renewal slipped into this quarter. Perhaps the customer's got some extra budget they want to use up, so maybe they're renewing early and the renewal isn't due until the next period. So it's helpful to understand these different dynamics and try and land with some policy decisions around how we sort of classify renewals and therefore how we classify churn. So picture on the left-hand side tries to sort of explain that, that the vertical columns are an example of when the renewal was due and the horizontal columns are when the renewal was actually booked. So the highlighted example is like, is a Q1 Q2, so everything that was booked in Q2. This is just a fictitious example. Let's say $10 million were booked in Q2, which is the number over on the far right-hand side. You can see of that $10 million, $5 million was due in Q2, so that was what we call on-time renewals. But some of the rest of it, the $2 million, $1 million were early— sorry, slip renewals. So they're effectively late renewals from Q4 and Q1. On the other side, you've got $2 million from Q3 and $500,000 from Q4 that effectively almost pull in, so they're kind of early renewals, all count from a bookings perspective. And then I've also highlighted this orange category on the far left-hand side, what we call a win-back. And different companies have different policies around this. Because we focus mostly on enterprise customers, we have this idea of allowing a renewal to slip up to a period of 6 months. Oftentimes the customers maybe are negotiating and there may be a significant upsell associated with the renewal that we haven't managed to finalize. We allow this period of 6 months to ensure that we don't lose any of those opportunities. After 6 months, if a renewal is still open, we would force churn it, and anything after 6 months that then comes in, we classify that as a win back.

Yeah, I love this slide for multiple reasons, because one, you need to know where the dollars are coming from, and you also need to know where to focus your team. So if you just look at the outcome, you may think you're doing really well, But if you're not paying attention to every one of these areas, that will catch up with you eventually. And so I think it's, I think it's about what the expectation is from each of these buckets. And eventually that leads to what amount of attention do you need to put in each one of these buckets? And so I would say in our model, if I, if I speak to the perpetual model that we had, we have, we have to have a certain amount of pull forward. You have to have a certain amount of win-backs and you have to have a certain amount of bookings that you do inside the period in which they're due. If you translate that to other SaaS and subscription models, it's much the same thing. You have to know where the dollars are coming from. And you also have to know where you want to put an emphasis. Win-backs aren't necessary if you get everyone in the period in which they're due. And that takes a lot of forethought in the process and the focus that you put into it up front. So I think this is a great, a great slide that, that shows that, but also says there's some metrics on the right-hand side that you can play with a little bit and fine-tune it to your own business and come up with what works, especially when you're talking about looking at 6 months or 3 months or 90, you know, 30 days or whatever the case may be.

Yeah, that's a good point. I think you wouldn't want to allow sort of slippage, maybe for a small business, it probably wouldn't be quite as appropriate. The other thing I know we were chatting about around this slide is this idea of aligning this to kind of the compensation side. You know, I've been with other teams where if I'm in a renewals team, I can actually hit my renewals number by pulling forward a lot of business for next year. And so if I'm missing my churn number, I can still hit my— maybe I hit my 100% of quota, maybe I go off to Achievers Club, but I've done that by effectively pulling business in from next year. Obviously, the risk there is that sometimes customers might need an incentive to renew early, and oftentimes that incentive could be a discount or maybe waiving the uplift. So there's pressure in the system if you allow these kind of pull-ins to offset any sort of churn. It's much healthier, I think, although not always popular with sales teams, to have the focus on really what's happening in the period. And from a churn perspective, really trying to match that churn to the period in which it's due. So if someone renews early and it has some churn associated with it, we wouldn't typically recognize that churn until the period in which the renewal was due, so we can kind of match apples with apples.

Yeah, that's right. And I do think that it speaks to where you can get additional dollars. And that usually comes with matching a resource with an opportunity to have a discussion with a customer who is hesitating to move forward based off of multiple different reasons. And sometimes that's the value prop. Maybe that's that they aren't as fully engaged as they should be, or they don't understand functionality features, different things that they can use to, to better their jobs and enhance their ability to watch their business. And so, I do think there's opportunity in there. And so, by paying attention to all these buckets where it's coming from, you certainly know where to apply that focus, but you also understand the variables of what it takes to achieve well inside the period and in future periods. Not everyone makes a buying decision inside the period in which they're due. Sometimes that happens before, and so you really have to understand where are the risks in your business and where are the dollars coming from.

Yeah, it's a good point, and there's some interesting indicators here, right? So sometimes a slipped renewal could be because there's upsell opportunity, but could also be because the customer's trying to figure out if they want to get off you or if they're, if they're still considering alternatives. So sometimes slipped renewals can be an indicator of, of churn. And correspondingly, pull-ins can also be a different indicator in terms of the strength of our relationship with the customers, opportunities to add more into those deals to try and drive up the opportunity size. It's a healthy way of looking at the business, splitting it into what's truly on time, that is in what we're expecting, what's early, what's late, and then how do we build that into the plans going forward. So if customers notified me this year that they're not going to renew next year, then really I don't want to put that renewal necessarily as something that is available for renew next year. If I've got that written confirmation now, it doesn't really necessarily make sense to put that in any kind of quota or goal, and we want to make sure we recognize that coming into the year next year. So it's just helpful to— unfortunately, Salesforce isn't that good at kind of capturing dynamic views of these different types of opportunities, but it's helpful to get a sense of this kind of time-based view as you build your plans going forward. Okay, even more detail below that. There's this idea of what we've been calling non-standard renewals, and we've bucketed those into 3 different groups here. And these are sort of— I don't want to call them exceptions because they're relatively common, and any of you who work in SaaS or in renewals will have seen, I'm sure, variants of these different things, maybe have called them different things. I remember when I first kind of came into this business and people started talking to me about rewracks and coterms, I had no idea what they were talking about. And You know, you have to sort of live and breathe a few of them to really understand, you know, what is it the customer is trying to achieve and how we can help them with their objectives, which is sometimes contractual, sometimes financial. And really being customer-focused through this, I think, is really the driver for how to think about this. The first one, relatively straightforward idea, co-termination. So you have one contract that has a specific beginning and end date, and the customer wants to make life easier for them by combining that with another contract that they have so they don't have to have two different contractual processes do renewal processes and bring those two start and end dates together. So in this example, you have a first contract, $100. Second contract's going to start halfway through the first contract, and the customer wants to co-term the second contract and, and, and the first contract to the, to the end start date. And so what we would typically do there is, is we, we would, we would recognize no churn on the account because the ARR value is, is growing. It's growing from the beginning of the period to $100, the end of the period to $200. It's just that the first contract is going to be a shorter-term contract, so you need 6 months to extend it so you've got the same end date. So aligning contract start and end date is relatively common and is often something that maybe gets flagged as a churn in the system but isn't actually a churn. You know, it's not really a churn because we're co-terminating with this other contract over here. So it's helpful just to get visibility of those and to tie those off with finance so you don't have differences in reporting. The second one is what we're calling re-racks. It's the basic concept of taking my existing contract, which hasn't quite finished yet, maybe I'm halfway through my first contract, and for whatever reason the customer doesn't want to continue with that first contract, perhaps the products and services they purchased are not really what they wanted, they would like to buy a different contract, maybe a much larger contract, maybe they're moving from on-prem to the cloud, or maybe that they have one use case and they now want to try a different use case. In certain instances it may make sense to give the customer some kind of credit for the remaining balance on their first contract. You wouldn't want to do it as a standard policy. But in certain instances, particularly if that second contract is very significant, you may want to give them some credit for the remaining value on their first contract. So you take the first contract, you combine it with the second contract, you come up with a new ARR number. And again, typically what we would do here is we wouldn't take any churn as long as the ARR value is growing. You don't want to be combining it into a smaller contract. As long as that contract's getting combined into a large contract, then you would, you would recognize it as zero churn, then the full value of the combined contracts at the end. End of the period. So again, another common reason where it might be viewed as churn at first blush, but typically isn't once you understand what the customer's trying to do. If you think about it, we're growing the ARR relationship with customers, so that really shouldn't be churn.

And I do think that in a non-standard year of COVID a lot of these requests have gone up because people are trying to achieve multiple purposes. First and foremost, budget. And second of all, timing becomes incredibly important. And so we certainly, on our part, have seen a significant uptick in all of these requests and payment terms, right? Goes along with it.

Yes, yes, it's interesting. I'm sure you're the same, Andrew, but we have— because we service all different industries and all different types of customers, we have certain customers who are just absolutely killing it, I mean, doing amazing business. You know, we have DIY stores that we support that are doing Black Friday almost every week. And then we also have cruise ships and cruise liners and hotels that have not had any customers for the past almost year now. So it's really putting a spotlight on where can we add some flexibility to the renewal process to reflect the fact that on the COVID-impacted side, that they're not getting as much value right now. And they're struggling. And one of the things we can do, which is the last idea down here, is this less than 12-month renewal idea. So, you know, maybe we go to a shorter-term contract, maybe we reduce the ARR for a shorter-term contract, and then we agree that we're going to put it back up again after that shorter-term contract. And the simple rule of thumb here is to remember that we're talking about annual recurring revenue, so ARR. So even if the customer is just renewing for one extra month, as long as they're renewing at the full ARR value, there shouldn't be any churn. So to keep it simple, let's say you've got a contract, $120,000 contract, and they want to renew it for one extra month for $10,000. $10,000 for one month is still $120,000 for the year. So you wouldn't actually recognize any churn on that, although you would probably forecast some because typically if customers are looking for something like that, it tends to mean that they're interested in moving off or moving to something else.

Yeah, that's right. We had a great example of this in our business at the beginning of COVID We had a big customer that was a theater and theaters were closed. And so in their case, they weren't quite sure what the outlook was going to be. And so we worked with them to arrange a less than 12-month renewal for them, knowing that they would have another buying decision down the road, but it put them in a better timeframe and prepared to make that decision. So as soon as they opened up, we were ready to, to rock and roll, as we would say, going forward. But I do think that This is another area where requests have gone up as people are trying to time up to buying decisions just based off the economy, their business, and how things are going.

Yeah, that's a really good example because, you know, COVID, particularly with fingers crossed the vaccines that are coming, right, is going to be the definition of a, you know, business as usual, significant reduction, and then hopefully back again business as usual. So it's understandable, and I think this can show some of that flexibility in terms of keeping keeping the focus on customer success, which is what it's all about. Okay, then we have some examples around is this really churn? And we've talked a bit about this first one, this idea of a sort of a temporary reduction or soft churn. And you can look at this in lots of different ways. How we typically look at it is if there's a temporary reduction for a short period of time, let's say within the 6-month period, as long as at the end of that period the customer is effectively renewing the full amount and kind of getting back to whole, then we wouldn't typically take churn. If it's longer than that, we would typically take churn, and if it goes back up again, we would kind of classify that as a win-back. I don't know, what's your experience, Andrea, been on the soft churn side?

It's exactly the same, and I think it's interesting because we've come across, just based off of what's happened over the last few months, some examples that we didn't even have in our model that are now in our model after a conversation and figuring out what to do because we've had a lot of great examples that have come up where customers have really been in unique situations. And so I agree with you. I think we use a little bit of a different timing. So in our case, we have different timing across different business units. One of our business units uses 3 months. One of our business units uses 3 30 days. And the other one is more of a real-time, whether we take churn on it or not, and then classify it as a win-back after the fact. So we have variable models inside our business units.

Interesting. I think that touches on the earlier point you made about like making sure that you're applying this to your business dynamics. It really starts with understanding your customers, what they're trying to achieve, and how you can sort of develop a definition for churn that fits with that model. That's really helpful. The second idea is around what we call change in product. So they switch out one widget and they switch it in for a different widget. This in principle is pretty straightforward to understand. I mean, we take churn at a customer account level. So as long as, let's say it's $100,000 renewal, as long as they retain $100,000 or more, then we wouldn't typically take churn on that. Sounds simple in principle, but can lead to some questions in practice. Oftentimes maybe a customer has stopped a particular use case, or if they're a government customer, maybe they had a funding vehicle for a particular use case particular use case, and that's effectively stopped or the project's ended. And now they want to go buy something completely different over here, requires a kind of a resale effort. And so there's a little bit of conflict there because what you may need to have your field sales teams involved in that resale activity, but typically we wouldn't pay on kind of incremental new ARR unless it met that first definition on the first slide. In other words, it's, it's kind of incremental to the churn amount. So that's something that's really important when it comes to sales compensation and making sure that people understand How do you define an account?

Yeah, and I do think that business theory comes into play here. That's why I think it's important for folks to kind of take a look at what do they want to happen, and then you wrap the behavior behind it. I think in our case, our motto at SolarWinds is no customer left behind, and that means if we need to really dig in and find out what, what case scenario is going to work for them, we'll figure out the back end of that. But our guiding principle is we never lose a customer. We try never to lose a customer. And, um, and that means that we'll introduce variables into our business that maybe some other businesses aren't willing to do. And, and so we do this change in, in product, um, on an exception basis, but we're open to the conversation again because of the motto of no customer left behind. We want them to be a customer.

Yeah, yeah, yeah. I love, I love that motto. That's a, that's a, that's a really, it's a really good kind of true north, I think. Obviously, it's important to understand these dynamics. You wouldn't want to brush this over. This is, this again is, it's useful feedback for the product teams. If, if, if customers are churning off certain solutions and buying a different solution, it's really clear, you know, the demand is there for, for something that, that, that is, um, really helpful to define product lifecycle and product roadmaps going forward. So it's important to track this. But it's important also not to count it as churn unless the customer actually, the value of the customer is declining. You can get into all sorts of discussions then around, okay, what is a customer? Okay, if I'm a company that's just been acquired by another company, does that mean the customer's changed? And if there's churn, therefore do I need to take it or not? You could be a government entity, you know, the State of California, is that a customer or is the Department of Education a customer? Or the Navy, is the Navy a customer, or is, you know, a particular division within the Navy a customer? So it's helpful to go into planning with clarity and of these definitions written down so everyone understands what that customer definition looks like. And then you can really track the health of the customer relationship on an ongoing basis. And as long as that's growing, not declining, then you wouldn't take, wouldn't take churn. And the third one's similar, similar in principle, what we call a change in channel. So at least for our product, a lot of our solutions are delivered or implemented by partners. Sometimes they're sold through partners, and if that's the case, sometimes the customer may be quite happy with our solution, but they're not happy with the partner for whatever reason. They want to move from partner A to partner B. If the partner is the account of record, in other words, we're selling to the partner and they're reselling on, sometimes you can miss that if you're not really engaging with the customer. So it's always important to engage with the end customers, at least in the enterprise business.

And what do you do, Tim, when one channel partner may have a different margin than the other one? What do you do with the balance of that? Do you consider that churn or you look at the account as whole?

Yeah, that's a great question. Typically we would look at the ARR value coming in from that customer through that channel. So if that ARR goes down because the margin changes, then we would take some kind of churn on that. It's a really good question. Yeah, that's really interesting, but the principle is still the same. If the customer is not leaving us, if their amount they're spending with us is not going down, then there shouldn't be churn. And this again, you can get into some challenging situations sometimes if a sales team's been working hard with a particular partner and a different partner's not very happy, and you get a little bit of conflict sometimes in this situation, but the guiding principle needs to be You know, we need to be incentivizing our more expensive field sales teams around growing customer accounts.

That's right.

So all of these things, if they're not growing customer accounts, the economics, the customer acquisition cost, the lifetime value doesn't really stack up to pay the full commission on effectively just treading water. So it's really important to get this correct setup at the beginning of the year, but it's also, I think, important to have some exceptions process as you go through this, because I'm sure, as Andrew, you pointed out, we've definitely learned a lot in terms of how COVID could impact some of the financial decision through the process.

That's right, that's right, yeah.

Okay, so this is a detailed slide, and I wouldn't propose kind of going through all of this, but this— I thought it might just be helpful to share how we think about defining a working definition. So this is actually what we use, and it's been developed over time to track and report on this available to renew churn rate, what we consider to be the primary kind of business health indicator. The other indicators we talked about are all very helpful, still, and we still report on those. But this is the one that we really use to manage the business on a day-to-day basis with, with the teams. So we look at all of those rules we've talked about. We look at churn that is really mapped to that period. So if it was early churn from previous periods, on-time churn from this period, or anything that has now slipped but gone beyond 6 months, take off the win-back, no churn for those corner cases we talked through, keeping it at a contracting entity level, a customer level, not a product level, no change of channel churn. And then we typically take that FX based on the time of churn. And then we compare that to what is available to renew pool. So you take what was originally available to renew, less the contractually, the multi-year renewals, you take that piece out of it, because they've already committed to renew. And we include within that pool the full amount that was originally available to renew. So anything that's obviously still open, anything that was closed in prior periods. So it's really an apples to apples comparison. We also include slipped deals. Because by definition, if we've slipped them, we haven't forced churn them yet, they are still available to renew. And then we typically track the FX impact separately, because you have to kind of fix the FX at certain points during the period. And there's lots of different ways of looking at FX. Was it based on when the original contract was done? Was it based on when the plan was set? Was it based on when we actually booked the deal? So lots of fun and games around that. So that's one way of looking at it. I'm sure there are lots of others, but that's the one that we've been using. So those are the 10 different rules. I'll just kind of run through them quickly and then hand over to Andrea to kind of talk about some of the takeaways for the session. But we focus primarily on ARR churn, and within that we focus primarily on Available to Renew. If you're running a renewals team, a customer success team, I think that's probably the best metric in terms of understanding performance and health of the business. From a timing perspective, we try and understand the dynamics in terms of early versus late churn. But we try and make sure we're matching the churn to the available to renew period as much as possible. Exceptions around less than 12 months, co-terms and re-racks typically don't involve churn as long as the ARR value is growing from the beginning of the period to the end of the period. Same thing with soft churn, change of product, change of channel. There's lots of variability typically within that, but as long as I'm coming out the other side with a customer who's spending the same amount or more, then we shouldn't really be taking churn on an annualized basis.

Yeah, very good. So it is funny to turn it into a list of 10 because I would tell you there's so many nuances underneath this, but I think these are really— it's a really great set of highlights of where to start and build that out. I think building a working definition and updating the corner cases as you learn is incredibly important.

Important.

If, if I look at the case of SolarWinds, where we started is certainly not where we're at today. And when we started the effort wrapped around this, we looked at what were our goals and objectives. And if you are a brand new company, you get to start there. If you're not a brand new company, then you have to have a subset of data to say, where do we feel like we've been performing before? Where do we want to go? And then what are the things that we need to consider along the way as we measure this? And as you— if you're building a team to pay attention to it, if you're trying to figure out what comp plans look like, then all of those things have to align with where you want to end up. But I would say, um, if I was to, to give an example with all these variables, it's a bit like buying a car and knowing that you want a red car and you've got 10 of them lined up and and somebody says, pick one, you just can't do it. Not until you look under the hood and you see the mechanics of how it runs. You sit in the seat. Is this going to work for me for the long drive? It's all of those variables that are so personal to your business, because again, you have that end goal in fact, in effect. And so I think focusing on some of those underlying business dynamics for your individual business. I think it, as long as I've been doing this, it's just been a long time. It's, it's taking others' best practices and marrying it with what you know about your business and coming out with what works for you. And then I do think that you have to track the various reasons for churn because it's just as important to know when things are going well, why? And when they're not going well, why? And, and where is, where is the, uh, the place that you can kind of zero in to focus on? And that becomes sort of your metrics of the things that have to work. It, it not only helps you with that focus and what your defined success, but it leads to predictability, which you and I both know in this business is likely the most important thing. Can you predict where you're going to land? And, and, uh, um, you know, if we look in terms of gambling, I think, I think some people do that, but you can't do that until you get to a place where you know the metrics so well that you can have a feeling about where your business is. And that comes from defining, uh, clearly defining what those things are that you want to measure. Again, all tied and leading to the end result that you want. And then you use those things to become predictable about where you're gonna land. Would you add to that, Tim?

No, that was perfect. I completely agree with all of that. I think the only thing I would do is maybe kind of coming right back to the beginning, right? There's only two levers to grow the business.

That's right.

Reduce churn, grow new ARR, grow net new ARR. And when you think about it, companies in our space report on ARR all the time, time, you know, they have a sense of what's your ARR, how is it growing. So they are having to define this churn rate, and unfortunately there isn't right now, you know, generally accepted accounting principles for how to define churn. So I think it's going to be one of those things that as more and more businesses become cloud orientated, SaaS orientated, ultimately customer success orientated, I think this topic is going to get probably a lot, a lot more light shone on it. And what Andrew is saying about, you know, really taking the time to understand and think through how your business operates with your customers, how they're getting value from the products, what contractual terms, what licensing models you have in place, what flexibility you want to offer under different, different types of scenarios. All of that can help inform a sort of a judgment call in terms of how to, how to build a working definition.

Yeah, but you're absolutely right. Really, the only thing about these models that isn't negotiable are the two things that you have to pay attention to to make a difference, and that is it's growing the business and minimizing churn. I think underneath that is where you get unique with different businesses and practices, but you're absolutely right, it really is those two things.

Thanks for your time. I'm a bit of a geek about this topic. I love kind of discussing and getting into the weeds. So if anyone has any questions or any feedback, I'm always looking, we're always looking to improve our understanding collectively. It's been really great fun working with Andrea and just understanding how SolarWinds approached this, because it's definitely not a one-size-fits-all approach, as she said, I love the car analogy. So, you know, this is definitely, I think, an area where the community, the SaaS community, can, can, can help each other and just get a better understanding of churn. So thanks for the time.

I appreciate it too, Tim, because Tim's incredibly analytical and has brought a good insight into exactly where things should fall. And, um, and I like the operations side as well. And so I think those things have complemented each other, both with the common goal, um, which is to, uh, increase ARR, right? That's the ultimate goal for everyone. Well, thank you guys. This has been terrific. Um, I know everyone's appreciated it, and we've been so lucky to have you. So again, thank you, and hopefully we'll see you guys soon, and I hope you have a great day. Thank you.

Thanks.

Bye.