/ Today I Learned Customer Lifetime Value (SaaS)
/ touchmarine
/ September 2, 2021

/ #TIL #LTV #CustomerLifetimeValue #SaaS #CAC #CostToAcquireACustomer
/ www.touchlabs.io/blog/til-about-customer-lifetime-value-saas

= Today I Learned About Customer Lifetime Value (SaaS)

.time September 2, 2021

== 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)]]((#cac)) tells us how much it costs us to get
a new customer. We need a low CAC and a high LTV.

* We should aim for LTV at least three times higher than CAC.

! id="cac"
? Customer Acquisition Cost (CAC)
: Cost to acquire a customer.

== How to Calculate LTV
_ The gist of calculating Customer Lifetime Value

Calculate LTV by dividing [[Average Revenue Per User (ARPU)]]((#arpu)) with
[[churn rate]]((#churn-rate)).

* This formula is simplified. Use analytics tools to accurately track LTV and
* other metrics.

! id="arpu"
? Average Revenue Per User (ARPU)
: Monthly Recurring Revenue (MRR) divided by total users

! id="churn-rate"
? Churn Rate
: Rate of cancellations and missed renewals

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