Video Overview:

Calculating the annual churn rate of a software-as-a-service business or any type of subscription business with recurring contracts is not easy. The monthly churn rate is easier, but the annual churn rate involves a few different methodologies and there is no single correct way, but all the methods shown in this model are justifiable. You can learn all the required logic, math, and formulas to do this on your own with this framework. It has a simple data entry log for customers added per month as well as a customer retention patter. Those two things can be used to build a forecast for expected customers added / lost over time.

Key Features:

Shows three methodologies for calculating annual churn rate with an actual example (3rd method only relevant for the ‘actuals’ analysis).
Extends for up to a 10 year period.
Handles contracts of varying lengths (could be defined as monthly, yearly, or any number of months).
A framework for modeling future expected customers and analyzing historical customer activity.
Fully unlocked and editable formulas.
Includes charts.

This template has a monthly view and an annual view, then below are three ways to calculate annual churn. The first way is based on the average customer count over the course of the year, the second is based on two cohorts (churn of existing customers vs new customers that joined during the year) and weighting each according to the count of each (denominator). The third is only relevant if you are doing actuals, and for that, I build a second set of tabs that are driven by a database. That database can be populated by putting in your customers historical start/end dates and if they are still a customer you can leave the end date blank. This third option uses something called ‘total customer months’ in order to get an average basis for measuring the amount of customers that are left. It weights the length of time they were a customer during the year, so a customer that left in February will have a greater impact on how high the annual churn rate is compared to one that left in November of the same year. All customers that were customers for the entire year will have the highest number of months and, therefore, result in a lower churn rate (higher denominator).

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