How to Calculate Customer Lifetime Value for SaaS Businesses

How to Calculate Customer Lifetime Value for SaaS Businesses

How to Calculate Customer Lifetime Value for SaaS Businesses.

What is Customer Lifetime Value ? Customer Lifetime Value is the total worth of a customer to a business over the entire period of their relationship.

Why is it important ? Customer Lifetime Value is a powerful metric that can help businesses align their sales, marketing, and product management processes. This can, in turn, benefit customers and increase net profits.

How does CLV impact Marketing ? By clearly estimating LTV, marketing teams can focus more on targeting qualified leads who can be easily acquired with the lowest costs as well as helping set the maximum marketing budget for both acquiring new customers, and for maintaining relationships with existing ones.

The Simple Calculation for Customer Lifetime Value. For this, you first need to calculate the following metrics: average purchase value, average purchase frequency rate, average customer lifespan.

The Advanced Method to Calculate Customer Lifetime Value. The advanced method has more variables but it also gives you a more precise LTV. Here are the variables involved: MRR, ARPA, gross margin, Net Revenue Churn Rate.

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