Ben Affleck is very serious about growth spreadsheets

How to Project Your Startup’s Growth

Projecting customer growth can be tricky, but is key to understanding where your startup is headed. It will tell you what resources you need when, and help anticipate inflection points in the business that competitors may miss.

To project your startup’s growth, it is intuitive that you have to calculate:

1. The number of customers you will add each month.
2. The number of customers you will lose each month.

However, the most common mistake founders make is not accurately accounting for customer attrition (#2) when projecting growth.

To make this process easier, I put together a simple spreadsheet that allows you to incorporate your customer retention curve to drive growth projections. I’ve used this model over the years to project a number of businesses, and wish I had something like it when I first started Oyster. It is particularly useful for subscription products, but relevant to any product with paying customers.

You can follow this link to view the spreadsheet.

Growth Drivers

In order to project the number of customers you will gain and lose in each month, you have to look at two things:

1. Monthly Acquired Customers (# you gain)

The number of customers you will acquire each month, given marketing spend and acquisition cost. It important to keep this projection grounded in reality rather than simply assuming a set growth rate over time. Driving this number off marketing spend and acquisition costs helps do that. As you scale, you can break this out by channel to get a more granular projections.

2. The Cohort Retention Curve (# you lose)

The percent of customers who sign up in month 1 who will still be around in each successive month. The curve represents the probability that a new customer is active in month [X] of their lifetime. To demonstrate the idea, I’ve included below an example of what projections for an upside case, base case, and downside case curve might look like for a pre-launch startup:

Retention curves generally reach an asymptote over time (meaning the curve will flatten out). This makes sense — older customers retain better than newer ones. Those who see less value in the service drop off earlier in their life, leaving the service with more committed members over time.

The spreadsheet applies your retention curve to each cohort of new customers acquired to show how many will remain at month [X]. It then sums these cohorts to give you an accurate projection of the total customers at the end of every month.

Spreadsheet Definitions

Below are definitions for each section of the model that help get to these two growth drivers:

To get Monthly Acquired Customers (# you gain)

  • Acquisition Build (cell E3): A projection of how many customers will be acquired each month for the first 60 months of the business, based on marketing spend and customer acquisition cost. This section has two inputs: marketing spend and acquisition cost. For example, if you think you will spend $5K per month and acquire customers for $15, you can input those numbers. You can change these numbers over time to account for key launches and expansions. If you don’t plan any paid marketing, you can change the “Acquired Customers” column directly based on your own estimates.

To get The Cohort Retention Curve (# you lose)

  • Month (column A): The month in the customer’s lifetime.
  • Cohort Retention (column B): The percent of the original cohort that is still around in each successive month. In other words, the probability that a customer who signs up in month 1 will be around in month X. If you haven’t yet projected a Retention Curve for your business, you can use the LTV spreadsheet I put together to create one. Once you have that, you can paste those projections into column B of this sheet.
  • Retained From Previous Month (column C): The marginal retention rate from month to month. For example, the percent of people that are retained between month 2 and month 3.

Bringing it all together

  • Retention Build (cell E9): This section applies your retention curve to each cohort of acquired customers. It projects how many customers in each acquired cohort will still be around after month 1, month 2, and all the way to month 60.
  • Growth Summary (cell E72): This is a rollup of the Retention Build, showing total active customers at the end of each month. If you want, you can add an average revenue row to drive revenue projections.

How to Use the Spreadsheet

  • Make a local copy of the file: You can do this by clicking on the tab and clicking “Copy to,” and copying to your own Google Drive:
  • Numbers in blue are inputs, and numbers in black are outputs. You can change the blue numbers to customize the projections. Specifically, you can adjust the “Cohort Retention” column that represents your Retention Curve, as well as the “Acquisition Build” section.

Working on lifetime value and growth models is not the most glamorous part of the founder journey. However, making the time is critical. Seeing the sensitivity of specific outputs to changing inputs gives you a deeper understanding of where the startup is, and where it must go. It is a great way to develop instincts that can help you make decisions about your business both faster and better.