Retention Analysis

A leading global workforce management platform experienced concerning retention trends during Q4 2023. The company, serving 13,700+ businesses needed urgent analysis to understand:

• What's driving the dramatic increase in customer churn?
• Which services and regions are most affected by retention challenges?
• How is revenue expansion from existing customers being impacted?
• What external factors correlate with the retention decline?

Executive Summary

Monthly customer churn has doubled from 0.13% to 0.27%, while revenue expansion from existing customers has declined from 102.87% to 100.68%.

This analysis reveals the problem is concentrated in specific services (IC) and regions (AMS and EMEA), pointing to external economic factors rather than company-wide issues.

Key Insights

Service-Specific Vulnerability

• Individual Contractor (IC) service drives 93% of all churn
• IC churn rate nearly doubled: 0.33% to 0.63%
• Employer of Record (EOR) maintains perfect 0% churn
• Clear distinction between discretionary vs. essential services

Geographic Concentration

• 90% of churn concentrated in AMS and EMEA regions
• Both regions converging at ~0.26% churn by December
• APAC and Brazil remain largely unaffected
• Regional economic factors appear to be primary driver

Revenue Expansion Deterioration

• Net Revenue Retention declined from 102.87% to 100.68%
• Dual pressure: customers leaving AND reducing spend
• Contractor business unit volatile, EOR unit steadily declining
• APAC only region showing accelerating expansion

Strategic Recommendations

Immediate Actions: Implement economic resilience programs including flexible pricing, value demonstration campaigns, and early warning systems for contract reduction patterns.

Portfolio Strategy: Accelerate growth in resilient regions (APAC) and services (EOR), while developing retention programs specifically for economic-sensitive segments.

Market Position: Reframe contractor services as cost-saving solutions during economic downturns rather than growth investments.

Data Schema

customer_monthly_revenue data table

dim_customer data table

dim_service data table

Monthly Churn Rate Analysis

Customer monthly churn rate has steadily increased from August to December 2023

While churn rate remains low (less than 0.3%), the consistent month-over-month increase is concerning. However, strong customer acquisition (From 12K to 13.7K customers) is offsetting churn impact.

Service-Level Performance Analysis

Individual Contributor (IC) service represents +93% of total churned customers

IC churn rate increased every month except November

• August to September: +30% increase (0.33% to 0.43%)
• September to October: +28% increase (0.43% to 0.55%)
• November to December: +11% increase (0.57% to 0.63%)

In term of impact:

• Total IC customers churned: 206 over 5 months
• December alone: 52 customers (highest monthly loss)
• Customer base growth: Despite churn, IC customer base grew from 7,885 to 8,251

Regional Performance Segmentation

90% of customer churn occurs in the AMS and EMEA regions

• AMS region dominates churn impact with 74 total churned customers (58% of all churn)
• EMEA accounts for 41 churned customers (32%)
• Other regions (APAC, BRAZIL) show minimal churn impact

Both AMS and EMEA show concerning deterioration of the churn rate

The convergence of both regions suggests common external factors (economic conditions, competitive pressure) affecting Western markets simultaneously, while other regions remain largely unaffected.

Net Revenue Retention Analysis

Overall NRR

NRR is on a concerning downward trend throughout Q4 2023

Business Unit Patterns

Major BUs show expansion, but with different patterns and downward trends

• The Contractor business unit is volatile. Exceptional August (107%), near-flat September (100.84%), then stabilized around 102.5%:
• On the other hand the EOR business units has a steady decline from 102.40% to 101.57%. It is more predictable but consistently weakening.

Regional NRR Performance

AMS performances are on the decline with a barely positive expansion

EMEA follow a similar pattern with a gradual decline

APAC is the only region with accelerating expansion

Strategic Hypothesis

Core Hypothesis: Economic Recession Impact

Q4 2023 economic conditions (rising interest rates, budget tightening, recession concerns) caused companies in Western markets to reduce discretionary contractor spending, driving increased churn in Individual Contractor services while essential Employer of Record services remained stable.

Supporting Evidence

Geographic Concentration

• 90% of churn concentrated in AMS and EMEA regions (Western markets)
• APAC/BRAZIL: Minimal churn impact during same period
• Implication: Economic factors are region-specific, not platform-wide

Service Differentiation

• IC service: 93% of total churned customers, churn doubled from 0.33% to 0.63%
• EOR service: Perfect 0% churn across all months
• Implication: Economic pressure affects contractor spend vs. employee payroll

Revenue Contraction Timing

• Overall NRR decline: From 102.87% (August) to 100.68% (December)
• Dual pressure: Companies both leaving (churn) AND reducing spend (low NRR)
• Implication: Companies reducing both headcount and per-employee spend

Strategic Recommendations

Economic-Resilient Service Portfolio

• IC Service: Flexible pricing programs for contractor management
• Value Proposition Shift: Position IC as cost-saving tool vs. growth investment
• EOR Expansion: Accelerate growth in recession-resistant payroll services

Geographic Risk Mitigation

• APAC Market Investment: Scale successful expansion in resilient region
• AMS/EMEA Retention Programs: Targeted campaigns for economic-sensitive markets

Customer Success Intervention

• Early Warning System: Identify customers reducing contracts before full churn
• Proactive Outreach: Engagement campaigns for contract-reducing customers
• Economic Support Programs: Extended payment terms and seasonal pricing