I am subscribed to a SaaS organization. I purchased their item on a yearly membership premise. Restoration rate is 6 times lesser than the membership rate and any new item they offer is marked down at floor value rate for general clients. I like a Saas that works that way, It makes client upbeat and keep on remaining. Give no motivating force to existing clients and anticipate that every one of them will take off.

Regards

Priyanka

Click through some of these links to learn about S…

]]>In which case, I think you meant (.95 ^12)*(1/1.20).

You are absolutely correct that you need to adjust for growth when you have it to calculate the correct value of churn. The formula I use in the post assumes either zero growth or that you are separating out growth customers and only dealing with original customers and the subset of those that churn.

The formula in your example is close, but not quite correct. I’ll provide the correct formula to adjust for growth below, but here are a couple of calculation tips to help keep things clear. First, it’s good practice to separate churn from growth cleanly in your data and calculations. Also, it’s generally clearer to stick to a single time interval, i.e., monthly or annual, but not both, in your calculations…then convert from monthly to annual after the fact.

It makes more sense if you lay out the entire formula for change in customers over time, including both churn and growth.

C_{total at end of month} = C_{begin of month} x (1 – monthly churn) x (1 + monthly growth)

or more compactly

C_{total end} = C_{begin} x (1 – a) x (1 + g)

solving for a = monthly churn gives

a = [ C_{total end} / ( 1 + g ) – C_{begin} ] / C_{begin}

In the formula above, you can see that the entire churn rate is NOT divided by ( 1 + g ), but only the total customers at the end of the month, C_{total end}. This is the essence of Peter Cohen’s comment above and the explanation in the “note” under the main churn formula that C_{end} in the formula refers to ONLY those customers that are left from the original C_{begin}. Or rather….

Churn only…

C_{end} = C_{begin} x ( 1 – a )

Churn and growth…

C_{total end} = C_{end} x ( 1 + g ) = C_{begin} x (1 – a) x (1 + g)

My reason for not including growth in the primary churn formula was just to keep it simple.

Hope this helps.

Cheers,

Joel

PS For the mathematically inclined, it’s worth pointing out that this multiplicative build up of churn, then growth, implicitly assumes they are independent of one another. In truth, they are only independent when your measurement interval is ZERO. Much of the churn calculation issues arise from this and the tips above are very much about ensuring that growth and churn can be treated independently as a good approximation.

]]>this is a nice article.

But woulnt you calculate the annual churn ( 1.05 ^ 12 ) * ( 1 / 1.20)

where 1.20 is a 20% growth in my revenues.

As chur should be discounted to the growth of my revenue.

Or did I get that wrong?

]]>