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

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Transcript

1. CHURN
   

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

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3. CHURN in #s
   # of customers lost in period

   # of total customers at beginning
   of period
   Churn=
   

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4. 1

   5
   Total Customers (End of Year)
   

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5. Customer Lifetime Period
   1

   Churn rate
   Customer
   Lifetime
   Period
   (yrs)
   =
   

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

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7. Customer Lifetime Value (CLV)
   [ ]
   Churn Rate
   CLV=
   NOTE: Measure in Same
   Time Period
   

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8. $1500
   Customer Lifetime Value (CLV)
   $300
   .20
   CLV=
   

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9. Customer Lifetime Value (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
   

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10. Customer Lifetime Value (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
    Profit $1,200,000 $1,333,333 $1,600,000 $2,000,000 $2,400,000
    800 Customers
    to Start
    

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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
    

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12. CHECK YOUR KNOWLEDGE
    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 $______.
    

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13. CHECK YOUR KNOWLEDGE
    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?
    

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

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15. CHURN in $s
    $ of recurring revenue lost in period

    $ of total recurring revenue at
    beginning of period
    Churn=
    

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

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

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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
    longer needs your service or product since their problem
    was solved.
    

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19. REDUCING VOLUNTARY CHURN
    • Look for Factors that Correlate with Churn.
    • Talk with leaving customers.
    • Remind customers of upcoming renewal
    REDUCING INVOLUNTARY CHURN
    • Develop a referral program!
    • Ask for testimonials.
    CAPITALIZE ON HAPPY CHURN
    

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