how sales cycle impacts forecasting, cac and ltv

© 2020 Demandbase |
Andrew Slutzky
Demandbase Webinar
How Sales Cycle Impacts
Forecasting, CAC and LTV
06/2/2021
Sr. ABM Strategy Manager

Agenda
How to define sales cycle, CAC and LTV
How to calculate these metrics in Excel
How LTV provides context to CAC
Why a CAC Ratio of 3:1 is desired
Key Takeaways
2

How do I follow along with this webinar?
Download the
Excel Workbook
3

Downloading the Excel Workbook
4
● The yellow tabs are section dividers while the navy tabs are the templates.
● The red tabs are the raw data source files (i.e., opptys, waterfall pivot tables) used in the templates.
● All data is dummy. The workbook is purely to be leveraged for educational purposes.

Demandbase Opptys Report > Export > Raw Data
5
● Accessing the raw data for this analysis can be done via Demandbase.
● Simply export an opportunity list or opportunity report.
● Ensure you have the correct columns to pivot upon and use in calculations.

How do I define?
Sales Cycle, CAC
and LTV
6

SALES CYCLE
.
DEFINITIONS: SALES CYCLE, CAC, LTV
7
CUSTOMER ACQUISITION Cost (CAC)
.
Definition:
● How long it takes for an oppty
created to close (i.e., months or
quarters)
How it Works:
● Export raw opptys. Pivot table by
oppty create date, close-won date
and oppty count.
● Create waterfall to see number of
months/quarters required for
created oppty to close
Pros:
● Accurate and easy to calculate
Cons:
● Done manually unless know SQL
● Need multiple calculations for
multiple segments/biz units
LIFETIME VALUE (LTV)
.
Definition:
● It is the total number of sales and
marketing expenses associated with
acquiring one new customer.
How it Works:
● Calculate sales/marketing expenses.
● Apply % dedicated to new biz
● Calculate new customers acquired
● Take new biz expenses and divide by
new customers adjusted for sales
cycle.
Pros:
Cons:
● CAC by itself isn’t meaningful
● Need to also calculate CAC payback
and LTV for context
Definition:
● It is the revenue or margin that your
company receives from one customer
over the lifetime of that customer.
How it Works:
● Take annual recurring revenue (ARR),
multiply by recurring gross margin % and
divide by annual % churn
Pros:
● A 3:1 LTV:CAC ratio is desired
Cons:
● Assumptions can get dated with high
volume transactions
● Requires gross margin and churn
calculations

How do I calculate these metrics?
Leverage Excel
Formulas to Calculate
Metrics
8

Sales Cycle: Differing by region & calculated by waterfall
9
Waterfall Calculation: Shows of the closed-won cohort, in what quarter was that cohort created.
Sales Cycle: Can differ per region and/or segment. Shows how long it takes for the win rate to be 100% realized.

Customer Acquisition Costs (CAC): Factoring in Payback Period
10
CAC: Takes all new
business sales and
marketing expenses and
divides it by new
customers adjusted for
9-quarter sales cycle.
CAC Payback Period:
Calculates how many
months (i.e., 10) it takes
to pay back the upfront
customer acquisition
costs after subtracting
out Support, CSM, Cost
of Ops etc…<6 is
considered great.
Note: Not currently
factoring in present time
value of gross margin.

Lifetime Value (LTV): Understanding LTV:CAC
11
LTV: Takes ARR multiplies by Gross Margin
% and divides by your dollar churn to
calculate the margin earned by that
customer over its lifetime
LTV:CAC Ratio: Takes LTV/CAC. A healthy
LTV:CAC Ratio is generally 3:1x. Here we are
seeing 9.6x

What should I walk away understanding?
Key Takeaways
12

Takeaways
An understanding of how sales cycle, LTV
and CAC are defined and their business
benefits.
How sales cycle impacts how you calculate
bookings, LTV and CAC.
How to calculate your sales cycle length by
using the waterfall method.
How to calculate the LTV:CAC Ratio and
how it provides context to both metrics.
13

how sales cycle impacts forecasting, cac and ltv

Recommended

Recommended

More Related Content

More from Demandbase

More from Demandbase (20)

Recently uploaded

Recently uploaded (20)

how sales cycle impacts forecasting, cac and ltv