How to calculate avg account lifetime in SaaS model?
I wish I had taken a stats class, but I didn't so I'm hoping someone out there can help me out.
We sell a product with a recurring monthly fee. I'd like to be able to figure out how long the average customer keeps their account open before cancelling.
The problem is that at any point in time, most customer accounts are still open and I don't know when in the future they will quit. So I don't know how to write the query if I use existing and cancelled customers. On the flip side, if I only queried customers who already closed their accounts, it seems like my stats would be skewed in a bad direction since it wouldn't take into account any customers who have had their accounts open for a long time (and are still open).
Any easy solutions or formulas for this? If not I can just work off of cancelled accounts.
Thanks!
2 Answers
I am not statistics expert, but it sounds like it's too early to get an accurate number. You don't know how long your active ones will stay.
My advice is to just guess. Use that as a basis until you get some actual numbers.
I would conservatively guess if this is to compare to your cost of acquisition (ie. internal cash flow), or optimistically guess if it's for a pitch deck to investors.
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Exactly, if the ones who quit are too small a sample, then the calculation will be meaningless. – Steve Jones 12 years ago
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Hi Joel, thanks for the answer. We're trying to make changes to increase how long users keep accounts with us. I'm just looking for a good metric to understand how well our efforts are working. We actually have a good amount of data to work with. So I was just hoping there was some common formula out there used to help estimate a number in situations like this. If there isn't anything like that available, then I'll just guess like you said. I'm sure as long as I guess in the same way each month I should be able to see if things are improving or staying the same. – Jim 12 years ago
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Based on your question, it sounds like you should just survey people that leave and find out why. If you still have most your customers then no statistic is going to help you more than that. I would also consider if it's where your time is best spent if you do still have most customers, maybe acquiring new customers is more important? – Joel Friedlaender 12 years ago
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Thanks Joel, I think you're right. I really want to focus on generating traffic and increasing conversions, but I just wanted a stat I could monitor to make sure we're keeping customers as long as we think we are. That way if we start seeing a decrease we can react to it. – Jim 12 years ago
After thinking about it a bit more, I came up with a stat I think will work for me. I figured I'd share it in case anyone else happened across this thread.
Each month I'm going to look at all cancellations over the prior 3 months and will figure out the average length of time those accounts were open. I can then compare that average month by month to see if it is going up, down, or staying the same.
A 3 month interval (for our business) should be long enough that we'll have enough accounts to get decent numbers but short enough to give us current information. Thanks all for your help.
