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SaaS Lifetime Value (LTV): Calculating and Optimizing


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Lifetime Value (LTV) can help your entire company understand the actual value that you can expect to receive from a single customer over the course of your relationship with them. It is the metric that tells you whether customers are happy and enjoying your product or that customers are ready to churn and you should reassess your strategy.

Here we walk through exactly how to calculate Lifetime Value (LTV), including what to and not to include in the calculation, as well as how to optimize this crucial SaaS metric.

Published in: Software
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SaaS Lifetime Value (LTV): Calculating and Optimizing

  1. 1. SaaS Lifetime Value (LTV): Calculating and Optimizing Lifetime Value (LTV) Price Intelligently’s SaaS Metric Mondays
  2. 2. Let’s talk about LTV Your SaaS company’s key to longevity Lifetime Value (LTV)
  3. 3. LTV = Lifetime Value Lifetime Value (LTV)
  4. 4. LTV = The total dollar amount you’re likely to receive from an individual customer over the life of their account with you. Lifetime Value allows for you to accurately account for and predict your businesses revenue and profit. Want To See What Your Lifetime Value (LTV) Is Right Now? Get your free ProfitWell account – 1-click SaaS Metrics >> Lifetime Value (LTV)
  5. 5. Here’s LTV broken down visually Lifetime Value (LTV)
  6. 6. Visuals and definitions are great but…why should you even care? Lifetime Value (LTV)
  7. 7. “Want your SaaS to last? LTV is the fountain of youth, the key to your SaaS company’s longevity” Lifetime Value (LTV)
  8. 8. More specifically… Understanding your LTV can help Identify customer personas who result in the best retention, as well as the highest opportunity for expansion revenue Sales Improve projections and help accurately determine the companies profitability FinanceMarketing Identify which channels and marketing programs bring in the best customers See the breakdown of your LTV with ProfitWell >> Lifetime Value (LTV)
  9. 9. Lets go deeper and calculate LTV like a #SaaS superstar Lifetime Value (LTV)
  10. 10. In your LTV calculation you only want to include active customer in your “ARPA metric” & Fully churned customers in the “customer churn metric” LTV Criteria Breakdown Items to Include Items to Exclude ARPA (Average Revenue Per Account) Inactive Users Customer Churn Delinquent Customers Lifetime Value (LTV) Calculating LTV is all about ARPA & Churn
  11. 11. LTV EQUATION: LTV SIMPLIFIED: EXAMPLE: LTV LTV Calculation Breakdown Lifetime Value (LTV) ARPA Customer Churn Rate Sum of all customer MRR / Total # of customers # of customers who churned / Total # of customers $100 ARPA 0.1 Churn Rate $1000 LTV
  12. 12. Once you master calculating LTV you can benefit your SaaS business even more by optimizing it Lifetime Value (LTV)
  13. 13. Extend your LTV lifespan by: 1. Cross-sell / upsell add-ons 2. Product line expansion 3. Scalable pricing along a value metric $ $ $ $ $ $ $ $ $ $ $ $ Lifetime Value (LTV)
  14. 14. Grow your customers’ LTV by building add-on revenue into your product. Be sure to find add-ons that supplement both LTV through increased revenue, but also retention. Check out companies like Appfolio for a great example. Key Optimization Cross-sell – Upsell Visitors Stranger Leads Opportunity Customer Lifetime Value (LTV)
  15. 15. Give customers not only add-ons, but entirely new products. You already have them in the door, so make sure you capitalize on that relationship through adding pieces of product to their workflow. Key Optimization Product line expansion Lifetime Value (LTV) PRODUCT
  16. 16. Build your pricing in away that supports growth by utilizing a value metric. This allows you to get at all points on the demand curve, ensuring you’re making more revenue as your customer uses your product more. Key Optimization Scalable Pricing Lifetime Value (LTV)
  17. 17. Boom. Now you can maximize your SaaS longevity with your new mastery of LTV Lifetime Value (LTV)
  18. 18. Want real time SaaS Metrics? Know and understand your SaaS Metrics with ProfitWell for free – the most accurate metrics on the market Click here to get your free ProfitWell account >> Lifetime Value (LTV)