How to Build The Perfect Business (Step-by-Step)

This is the most important thing. If you do not have what's called revenue retention, you have nothing. Revenue retention simply means how much revenue from last year you retain to the next year. If you don't have that, you will always be in the sales business.John Paul DeJoria, who started Paul Mitchell and Patron, says this quote that I always remember: "You want to be in the resale business, not in the sales business."There are two types of retention people discuss. One is logo retention - if you had 100 customers in January, how many do you have now? The second is revenue retention - if you made $100 from those customers in aggregate in January, how much do you make from that same cohort today?Logo retention almost never reaches 100% because of structural churn. Someone moves away, dies, their business fails, or an employee who used your service gets fired. This is involuntary churn. Then there's voluntary churn - when people leave because they think you suck. That's what you really want to avoid.With revenue retention, you absolutely can have over 100% net revenue retention. Even if you lose some customers, the ones who stay increase their spending enough to make up for those you lost. The easiest way to achieve this is having a clear path for cheaper customers to spend more with you.For example, if I have a $9 monthly membership and a $99 monthly membership like Skool, when someone upgrades from $9 to $99, I get an 11x increase in value from that customer. Even if 20% of customers leave from the $9 tier, if just 10% upgrade to the 11x tier, I have more than 100% revenue retention.Here's interesting data from Skool that manages hundreds of thousands of memberships: The greatest churn happens in month one - over 20% across all categories. The next big drop is about 10% at month three. The final major churn point is month six. After that, churn drops to almost 2% monthly.The big takeaway: do whatever you can to get people to month six. Focus on making the first 30 days awesome, have a clear way to get them past month three, and you'll walk your way to month six where churn becomes minimal.Examples of non-sticky businesses include education (you graduate), roofing, and car sales. Sticky businesses include life insurance (you pay until you die), alarm systems, internet providers, and banking.