Business Calculations
Margins, markups, ROI and pricing — the numbers operators actually use to make decisions.
10 calculations published in this category.
Startups
Marketing
How To Calculate Churn Rate
Churn rate is customers lost divided by customers at the start of the period. The division is trivial; the trap is everything that follows, because a monthly rate compounds into a yearly one that is far lower than twelve times its size.
Churn Rate = Customers Lost / Customers at the Start
How To Calculate Conversion Rate
Conversion rate is conversions divided by visitors. The arithmetic is one division; the discipline is deciding what counts as a visitor, what counts as a conversion, and whether both were counted over the same stretch of time.
Conversion rate = conversions / visitors
How To Calculate Customer Acquisition Cost
Customer acquisition cost divides everything you spent to win demand by the number of customers who actually paid. The arithmetic is trivial; the judgement sits in deciding which costs belong in the numerator and which signups belong in the denominator.
CAC = (Marketing spend + Sales spend) / New paying customers
How To Calculate Customer Lifetime Value
Customer lifetime value estimates how much contribution one customer leaves behind over their whole relationship, not just in the first month. With 50 of monthly revenue, a 70 per cent gross margin and 4 per cent monthly churn, that comes to 875.0.
LTV = ARPU x gross margin / churn
Operations
How To Calculate Days Sales Outstanding
Days sales outstanding is the average number of days a business waits to be paid after making a sale. It comes from a single ratio and a single multiplication, yet it decides how much cash is trapped inside receivables — and it is routinely computed with the wrong denominator.
DSO = (Accounts Receivable / Revenue) x Days
How To Calculate Inventory Turnover
Inventory turnover is cost of goods sold divided by average inventory, and it answers one question: how many times did the shelf empty during the period? Everything contentious about it comes from which inventory figure sits in the denominator.
Inventory turnover = COGS / average inventory