onlycfo.io · 2025-04-07
· 422d
Lies of Churn Rates & Customer Lifetime Value
This article examines why churn rates and LTV/CAC ratios are commonly misinterpreted, arguing that CAC Payback Period is a more reliable metric for assessing unit economics viability. The author warns that historical churn extrapolation can be deeply misleading, especially in high-growth periods, and advocates for cohort-based analysis to capture stair-step churn patterns that simple calculations obscure.
Metrics in this report
Annual Churn Rate
10percent
Illustrative example for customer lifespan calculation
Annual Churn Rate (Year 4)
18percent
High-growth period masking cohort-level churn increase in illustrative example
Available-to-Renew Churn Rate
16.7percent
Example with 100 customers, 10 churn, but only 60 available to renew
CAC Payback Period
25months
Example software company in article
Customer Lifespan (Implied)
20years
Early-period estimate in illustrative example (later revised to 6 years)