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
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
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)
5. Customer Lifetime Period 1
 Churn rate Customer Lifetime Period (yrs) =
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
7. Customer Lifetime Value (CLV) [ ] Churn Rate CLV= NOTE: Measure in Same Time Period
8. $1500 Customer Lifetime Value (CLV) $300 .20 CLV=
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
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
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
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 $______.
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?
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 longer needs your service or product since their problem was solved.
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