Tech Innovate, a SaaS company, has provided the following financial and customer data for the first quarter
Question:
Tech Innovate, a SaaS company, has provided the following financial and customer data for the first quarter of the year:
- Gross Revenue at the start of the quarter: $500,000
- Total Revenue Lost from Churned Customers during the quarter: $50,000
- Additional Revenue from Upsells and Cross-sells during the quarter: $20,000
Based on this information, which of the following is the correct calculation of Tech Innovate’s Gross Revenue Churn Rate for the first quarter, and what does it signify?
A) Gross Revenue Churn Rate is 10%, indicating the percentage of revenue lost from churned customers relative to the initial gross revenue.
B) Gross Revenue Churn Rate is 6%, representing the net loss in revenue due to customer churn after accounting for additional revenue from upsells and cross-sells.
C) Gross Revenue Churn Rate is 4%, showing the net increase in revenue from the start of the quarter, considering both churned revenue and additional revenue.
D) Gross Revenue Churn Rate is 14%, reflecting the total decrease in revenue from churned customers and the impact of additional revenue from upsells and cross-sells.
2. Which of the following statements accurately explains why churn is considered an important metric and key performance indicator (KPI) for evaluating the sustainability and growth potential of a target company from a private equity perspective?
A) Churn directly correlates with a company’s advertising and marketing effectiveness, which are the primary drivers of revenue for SaaS companies.
B) A high churn rate indicates that a company has a robust customer acquisition strategy, signaling strong future growth and market penetration.
C) The churn rate primarily measures a company's operational efficiency and cost structure, which are vital for assessing the company’s financial stability and investment risk.
D) Churn reflects customer retention and satisfaction, which impacts the overall health and profitability of a company.
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher