Web hosts that fail to focus sufficiently on preventing customer churn may be failing to recognize the variety and severity of negative effects that churn can have on a business.

There are two main detrimental effects that customer churn has on a company. The first is that, when it is time to sell the company, the greater the churn, the lower the value of the company. The second detrimental effect is the negative impact churn has on referrals and efforts at up-selling additional products and services. The longer a customer is with a company, the greater chance the customer will refer the hosting company. And the cost of acquiring new customers through referrals is almost zero.

Over the past 12 years, I have been fascinated by the common economic patterns of recurring revenue industries such as paging, two-way radio, local phone, long distance, ISPs, cellular, PCS and Web hosting.

Specifically interesting is the pattern of customer churn in an environment of declining prices, and the way companies handle it. Replacing a $20-per-month customer with a $16-per-month customer comes at an obvious cost. I have seen companies increase their total customer counts by 30 to 50 percent over a period of time, only to see their monthly recurring revenue increase by just 5 or 10 percent.

Luckily, at this point in the evolution of the hosting industry, there does not yet appear to be a shortage of new customers. The problem, so far, has been keeping them. If the growth in the size of the market slows considerably, the competitive environment will become much tighter as winning new customers becomes much more challenging.

While compiling the list of reasons customers leave companies may be easy, but compiling the list of reasons specific customers leave a specific company is not. Imagine the value of knowing why most customers leave your company. That knowledge could prevent the loss of other customers for similar reasons in the future.

Web hosts should work hard to understand the forces that influence churn, as that understanding can be a key tool in combating future churn. Place a question somewhere in the disconnect procedure that gives departing customers a chance to air their grievances. Or have them contact you by phone to disconnect.

Losing a customer and simultaneously gaining another is a value-destroying proposition. I would recommend that Web hosts put as much thought into why customers leave as they do into how to attract more.