Due Diligence

Churn Analysis

Learn to read customers by cohort, counting how many actually stay, so you can tell durable, compounding revenue from a leaky bucket that only looks healthy because acquisition outruns churn.

  • Beginner
  • 11 min total
  • 13 chapters

What decision this helps you make: Whether a business's revenue is durable or a leaky bucket, judged by retention rather than the growth curve.

What this topic is

Churn analysis measures whether a business actually retains its customers, using cohort analysis (tracking how many of the customers acquired in a period stay active later) to separate genuine retention from new-customer growth.

Why it matters

Growth can mask a "leaky bucket": a business losing many customers can still grow by acquiring faster. That holds until acquisition slows or gets pricier, and revenue falls. Retention, not the top-line curve, tells you how durable the revenue really is.

Who should learn it

Anyone buying or valuing a recurring-revenue or repeat-purchase business.

What you will understand

  • Understand churn analysis: measuring retention by cohort
  • See how growth can hide a leaky bucket
  • Separate genuine retention from new-customer acquisition
  • Know why retention drives durable revenue and lifetime value

Prerequisites

Common misconception

"Revenue is growing nicely, so the business is healthy." Growth can hide a leaky bucket: a business losing 40% of customers a year can still grow if it acquires even faster, usually by spending heavily on marketing. The moment acquisition slows or gets more expensive, revenue falls. Retention, measured by cohort, tells you the truth the growth curve hides: a high-growth business with high churn is running to stand still.