Video · Short explainer (under 15 minutes)

Customer Retention & Cohort Analysis: How VCs Calculate Customer Retention

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Customer Retention & Cohort Analysis: How VCs Calculate Customer Retention

If you have never actually built a retention curve, reading about them only gets you so far, so this is a visual walkthrough of how a cohort table becomes a retention curve and how investors read it. It goes from raw user retention to net dollar retention step by step, which is the mental model you need before you try to bound LTV from three months of data. Watch it once, then go build your own tiny version in the template below.

  • A cohort table (customers acquired per month, then retained each following month) is the raw material a retention curve is drawn from.
  • Reading the shape of the curve, where it drops fast and where it flattens, matters more than any single average when your history is short.
  • Net dollar retention (expansion offsetting churn) can tell a very different story than logo retention, so watch both as your cohorts age.
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The question it answers

  1. How do I estimate LTV when I have only three months of data and no idea what my real churn or retention curve is yet?

Read with it

  1. This is the piece that made cohort-based LTV the default way serious investors think, and it is exactly the right medicine when... Social Capital / The Startup (Medium) Article · About 20 minute read Diligence at Social Capital, Part 3: Cohorts and (revenue) LTV Jonathan Hsu
  2. This is the template to stop guessing a single LTV number and plot your actual cohorts instead. You type in only the basics... andrewchen.com Tool · Downloadable Excel template plus short guide The easiest spreadsheet for churn, MRR, and cohort analysis Christoph Janz (Point Nine Capital), guest post on Andrew Chen's blog
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