When you have a business where customers subscribe to a monthly plan, and you have new customers signing up every month, it feels like your revenue will keep growing forever. However, as customers will also cancel their subscriptions (churn), eventually your growth will flatline.
Calculating this growth ceiling is actually quite simple:
Growth ceiling = (New customers / Churn rate) * ARPU
I’ve found it to be a useful exercise to make a spreadsheet where I derive the growth ceiling:
|Prompted to start trial||100|
|Form completion rate||20%|
|Trial-to-paid conversion rate||50%|
Not only does knowing your growth ceiling help with future planning, it also gives you a simple model to experiment with, where you can tweak different numbers to see how they’ll effect future growth of your business.
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