Today I Learned About Customer Lifetime Value (SaaS)
Customer Lifetime Value
Customer Lifetime Value (LTV) is a term used in SaaS that tells us how much a customer is worth. We use it to determine if acquiring a new customer pays off and to focus on long-term value.
- Customer Lifetime Value (LTV, CLTV)
- How much a customer will spend on your service overall.
Customer Acquisition Cost
Customer Acquisition Cost (CAC) tells us how much it costs us to get a new customer. We need a low CAC and a high LTV.
- Customer Acquisition Cost (CAC)
- Cost to acquire a customer.
Calculate LTV by dividing Average Revenue Per User (ARPU) with churn rate.
- Average Revenue Per User (ARPU)
- Monthly Recurring Revenue (MRR) divided by total users
- Churn Rate
- Rate of cancellations and missed renewals
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