Limits to Growth

Every recurring revenue business has a ceiling. The maths is unforgiving — but there’s a way through.

The ceiling

Churn creates a mathematical limit on how large a recurring revenue business can grow.

Here’s why. Each year, churn takes a percentage of your total base. As the base grows, the absolute amount churned grows too. Eventually, churn equals new sales — and growth stops.

The formula: maximum base = annual new sales ÷ churn rate.

Three businesses, each with sales adding £1m of new logos per year:

At 10% churn, once your base hits £10m, you lose £1m per year — exactly what sales adds. Growth stops. The business is on a treadmill.

Same sales investment. Ten times the difference in outcome.

Why the ceiling matters

This isn’t abstract maths. It determines where you should focus.

A business with 10% customer churn and a £5m base is halfway to its ceiling. Doubling the sales team won’t help — you’ll just hit the wall faster. The constraint is retention, not sales capacity.

A business with 2% customer churn and a £5m base has runway to £50m before the ceiling binds. Here, sales investment makes sense. The constraint is acquisition, not retention.

Most operators don’t know which situation they’re in. They pour money into sales when the real problem is churn. Or they obsess over retention when they have decades of headroom.

The ceiling calculation tells you where to focus.

The escape: growing customers, not just keeping them

Customer churn is partly inevitable. Customers go out of business, get acquired, change strategy, or simply move on. You can reduce it, but you can’t eliminate it.

But here’s what changes the maths: revenue per customer can grow even while customer count shrinks.

If your average customer grows their spend by 15% per year, you can sustain 10% customer churn and still grow revenue 5% annually — without adding a single new customer.

This is why net revenue retention above 100% is so valuable. A business with 90% gross retention but 115% net retention isn’t just surviving churn — it’s growing through it. The customers who stay are worth more each year.

What this means for operators

Customer success isn’t a cost centre. If customer churn is 8% and expansion revenue is 5%, you’re net losing 3% of your base annually. Investing in customer success to drive expansion from 5% to 12% flips the equation — now you’re growing 4% annually from the existing base alone, before any new sales.

Account management is growth strategy. The sales team adds new customers. The account management team grows existing ones. At a certain scale, account management contributes more to revenue growth than new business — and at much lower cost per pound.

Segmentation matters. Not all customers expand equally. Enterprise accounts with growing headcount and usage-based pricing can 2-3x over their lifetime. SMB accounts on flat-rate plans might never expand. Focus expansion efforts where the physics supports it.

Pricing structure determines your options. A flat annual subscription caps expansion revenue by design. Usage-based pricing, seat-based models, or tiered plans create natural expansion paths. If your pricing doesn’t allow customers to grow their spend, you’ve capped your own ceiling.

The strategic question

Every recurring revenue business eventually confronts the same question: can we grow customers faster than we lose them?

If yes, the ceiling lifts. Revenue can compound even with imperfect retention. Customer success and account management become genuine growth engines, not just defensive functions.

If no, growth depends entirely on new sales outpacing churn. That works early, when the base is small. It stops working as you approach the ceiling.

The businesses that scale past their natural limits are the ones that figured this out early — and built the teams, incentives, and pricing structures to make expansion a first-class growth lever.

See also: Non-Renewal vs Churn for the distinction between measuring customer decisions and measuring outcomes. Gross vs Net Retention for how expansion can mask or compensate for churn.

Connects to Library: Systems Thinking — Churn as a balancing feedback loop that caps growth.