Kellblog by Dave Kellogg is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

An Important Subtlety in Quarterly vs. Annual Churn Rates

1Q18 2Q18 3Q18 4Q18 2018

Starting ARR 10,000 11,250 12,725 14,650 10,000
New ARR 1,500 1,750 2,250 2,500 8,000
Churn ARR (gross) 250 275 325 400 1,250
Ending ARR 11,250 12,725 14,650 16,750 16,750

Churn rate (annual) 12.5%

Churn rate 1 (/starting quarter) 2.5% 2.4% 2.6% 2.7% 10.2%
Annualized 10.0% 9.8% 10.2% 10.9%
Churn rate 2 (/starting year) 2.5% 2.8% 3.3% 4.0% 12.5%
Annualized 10.0% 11.0% 13.0% 16.0%

Notes
- Annualizing quarterly rates by multiplying by 4
- The average of the annualized rates will always equal the sum of the quarterly ones because
( 4A+4B+4C+4D)/4 = A+B+C+D
- I greyed out the boxes for the annual, annualized churn rates rather than show redundant info
International License.

Realistic Example of ATR Churn Rates

1Q18 2Q18 3Q18 4Q18 2018

Starting ARR 10,000 11,250 12,725 14,650 10,000
New ARR 1,500 1,750 2,250 2,500 8,000
Churn ARR (gross) 250 275 325 400 1,250
Ending ARR 11,250 12,725 14,650 16,750 16,750

Available to renew 1,500 1,750 2,500 4,250 10,000

ATR churn 16.7% 15.7% 13.0% 9.4% 12.5%
Annual ATR churn, average 13.7%
Weights 15% 18% 25% 43%
Contribution 2.5% 2.8% 3.3% 4.0%
Annual ATR churn, weighted avg 12.50%

Notes
- This example is realistic in showing starting ARR split in a backloaded 67.5/32.5 fashion (1H/2H)