112% ARR is really 71% ARR Many businesses calculate their annual rate of return from customers (ARR). In one example examined by researchers, the initial calculation suggested an ARR of 112%. This calculation was, however, based on the rate of return from retained users (users who were still customers at the end of the financial […]

112% ARR is really 71% ARR Many businesses calculate their annual rate of return from customers (ARR). In one example examined by researchers, the initial calculation suggested an ARR of 112%. This calculation was, however, based on the rate of return from retained users (users who were still customers at the end of the financial year). When a second calculation was completed – including all customers lost during the year by churn – the ARR fell to 71%.This is an example of survivor bias in action. Survivorship bias occurs when an assessment is based on the outcomes for what might be called ‘survivors’ or focusing on successful people – ignoring the failures and non-survivors. Examples of survivor bias follow: The book ‘Seven habits of highly effective people’ by Stephen Covey – provides an overview of habits Covey found to be common to a number of highly effective people. But Covey…