Part II: Working with Formulas and Functions
If this company makes a 60% gross margin, pays 8% in commissions, and has estimated the
fixed expenses accurately, it will need to sell $16,935 to break even.
Calculating customer churn
Customer churn is the measure of how many customers you lose in a given period. It’s an
important metric in subscription-based businesses, although it’s applicable to other revenue
models as well. If your growth rate (the rate at which you are adding new customers) is
higher than your churn rate, then your customer base is growing. If not, you’re losing cus-
tomers faster than you can add them, and something needs to change.
Figure 15.7 shows a churn calculation for a company with recurring monthly revenue. You
need to know the number of customers at the beginning and end of the month and the
number of new customers in that month.
Subscribers Lost
=C2+C3-C4
Churn Rate
=C6/C2
FIGURE 15.7
Calculating the churn rate
To determine the number of customers lost during the month, the number of new custom-
ers is added to the number of customers at the beginning of the month. Next, the number
of customers at the end of the month is subtracted from that total. Finally, the number of
customers lost during the month is divided by the number of customers at the beginning of
the month to get the churn rate.
In this example, the business has a churn rate of 9.21%. It is adding more customers than
it is losing, so that churn rate may not be seen as a problem. However, if the churn rate is
higher than expected, the company may want to investigate why it’s losing customers and
change its pricing, product features, or some other aspect of its business.
