$45.00 USD
After purchase, the template will be immediately available to download. It is also included in the SaaS models bundle and The Super Smart Bundle.
I've been working on SaaS models since 2016 and it was the second type of model I ever built. It has taken many years for me to get to a point where I feel comfortable building such a calculator as the one you see above. It is the most comprehensive approach to modeling an annual churn rate and calculating an annual churn rate based on real historical customer data.
Template Features:
- Learn 3 ways to calculate annual churn rate.
- Includes a SaaS modeling (modeling future) version and historical actuals version.
- Modeling version is driven by new customers per month and a retention patter.
- Historical actuals version is based on start and end date of customers (everything is derived from that)
- Shows a monthly and annual detail of customers added, lost, and ending balance.
- All calculations are unlocked and editable so you can follow the logic.
- Includes visualizations.
- On the historical actuals, I go as far as showing the retention pattern resulting from customer data.
Explanation of Each of the Three Methods in the Model
Method #1: Using Average Number of Customers
This method calculates the annual churn rate by dividing the total number of customers who churned during the year by the average number of customers during that year. The average number of customers is typically determined by adding the number of customers at the beginning and end of the year and dividing by two, or by averaging monthly customer counts if available. It's a straightforward approach that provides a general churn rate but may not account for fluctuations in customer numbers throughout the year.
Method #2: Cohort Analysis
In this method, customers are segmented into cohorts based on when they joined—for example, existing customers at the start of the year and new customers acquired during the year. Churn rates are calculated separately for each cohort by dividing the number of churned customers by the total number of customers in that cohort. This approach offers more detailed insights into churn patterns within different customer groups, helping identify specific issues affecting each cohort, but it requires more detailed data and analysis.
Method #3: Calculating Churn Based on Total Customer-Months
Method #3 involves calculating the exact number of months (or fractions thereof) each customer was active during the year to find the total customer-months. The annual churn rate is then determined by dividing the total number of customers who churned during the year by the average number of customers per month (total customer-months divided by 12). This method provides the most accurate churn rate as it accounts for the exact time each customer was at risk of churning, but it requires detailed customer data and more complex calculations.
| Method | Pros | Cons |
|---|---|---|
| Method #1: Average Number of Customers | - Simple and easy to calculate - Minimal data required - Quick for high-level estimates | - Potential inaccuracies - Ignores timing and duration - Misalignment risks - Less accurate for fluctuating customer bases |
| Method #2: Cohort Analysis | - Provides segmented insights - Aligns numerator and denominator - Highlights behavioral differences - More accurate than Method #1 | - More complex - Requires detailed data - Potential misinterpretation without proper weighting - Doesn't fully account for exposure time |
| Method #3: Total Customer-Months | - Most accurate method - Accounts for exact exposure time - Aligns numerator and denominator - Detailed churn pattern analysis | - Data intensive - Complex calculations - Requires significant resources - May not be practical for all businesses |
Choosing the Right Method
Use Method #1 When:
- You need a quick, high-level churn rate estimate.
- Data is limited to starting and ending customer counts.
- Your customer base is relatively stable without significant fluctuations.
Use Method #2 When:
- You have data on customer cohorts and want to understand churn behavior differences.
- Interested in more accurate churn rates than Method #1 without the complexity of Method #3.
- Want to tailor retention strategies for different customer segments.
Use Method #3 When:
- Precise churn measurement is critical for your business decisions.
- You have access to detailed customer activity data (start and end dates).
- You're willing to invest time and resources for accurate churn analysis.
More SaaS Models and Calculators:
- Cohort Modeling
- SaaS MRR and ARR Calculator
- SaaS Pricing Simulator
- Rolling Revenue Model
- SaaS CFO Dashboard
- Ad Spend Guide
- B2C SaaS Model
- Activity-based SaaS (FaaS)
- SaaS Driven by Headcounts
