Average tenure of current customers

Question

To estimate the average customer lifetime for a subscription business, an analyst averages the tenure of everyone who is a customer today and gets $3$ years.

Why is this misleading, and how should it be measured?

Accepted Answer

The bias. By looking only at customers who are still active, you condition on survival. Every customer who signed up and quickly canceled is gone from the sample, and those short-lived customers are exactly the ones who drag the true average down. So the pool of current customers is tilted toward the long-lived, and averaging them overstates the typical lifetime. It is the same selection effect as survivorship bias in fund returns: the ones that "died" young are missing. There is a second subtlety pointing the other way: current customers have not finished their tenure yet, so their eventual …

Average tenure of current customers

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