J. Scott Christianson
January 06, 2022
50

# Calculating Churn and Customer LifeTime Value

Churn and Customer Lifetime Value (#CLV) are two key metrics for any business with reoccurring revenue, and especially so for fast-growing startups. In this video we'll look at basic calculations for churn and CLV, and why they are important. We'll also discuss some of the causes of customer churn and how to deal with churn. For a video version check out: https://www.youtube.com/watch?v=VswFxHa3Gvw

Interested in content like this? Then check out The Free-Range Technologist from Prof C. https://frtech.substack.com/

January 06, 2022

## Transcript

1. CHURN

2. CHURN aka Turnover
• Customers
• Employees
• Vendors
• A common KPI (Key
Performance Indicator)
• Used to Calculate Customer
• Critical for subscription
with returning customers

3. CHURN in #s
# of customers lost in period
# of total customers at beginning
of period
Churn=

4. 1
5
Total Customers (End of Year)

1
Churn rate
Customer
Period
(yrs)
=

20%
Churn =
Customer Retention Rate = 80%
Customer Lifetime Period = 1/Churn Rate
Customer Lifetime Period = 5 yrs

[ ]
Churn Rate
CLV=
NOTE: Measure in Same
Time Period

8. \$1500
\$300
.20
CLV=

Revenue
Per
User
\$300 \$300 \$300 \$300 \$300
Churn 0.20 0.18 0.15 0.12 0.10
CLV \$1500 \$1667 \$2000 \$2500 \$3000

Revenue
Per
User
\$300 \$300 \$300 \$300 \$300
Churn 0.20 0.18 0.15 0.12 0.10
CLV \$1500 \$1667 \$2000 \$2500 \$3000
Proﬁt \$1,200,000 \$1,333,333 \$1,600,000 \$2,000,000 \$2,400,000
800 Customers
to Start

11. CHURN=SPEED LIMIT ON GROWTH!
As a company grows, it is
harder and harder to ﬁnd
new customers to replace
those who churned
CHURN IS AN UNYIELDING FORCE

If your average customer pays you \$50 /
month and you lose 15 customers out of a
base of 375 per month, then your customer
CLV is \$______.

If your average customer pays you \$50 /
month and you lose 15 customers out of a
base of 375 per month, then your customer
CLV is \$1,250.
What happens if you lose 12 customers instead?

14. Revenue may vary by customer!
\$X per
Month
\$2X per
Month
\$3X per
Month

15. CHURN in \$s
\$ of recurring revenue lost in period
\$ of total recurring revenue at
beginning of period
Churn=

16. Customer Spend can change
\$X per
Month
\$X per
Month
\$X per
Month

17. Customer Spend can change
\$5X per
Month
\$X per
Month
\$X per
Month

18. TYPES OF CHURN
Voluntary Churn – Customer takes action to cancel their
subscription or not renew.
Involuntary Churn – Customer fails to take action to renew.
e.g., a customer’s credit card expires.
Happy Churn – Your product/service worked! Customer no