SaaS Lifetime Value (LTV): Calculating and Optimizing

SaaS Lifetime Value (LTV):

Calculating and Optimizing

Lifetime Value (LTV)

Price Intelligently’s SaaS Metric Mondays

Let’s talk about LTVYour SaaS company’s key to longevity

Lifetime Value (LTV)

LTV = Lifetime Value

Lifetime Value (LTV)

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.

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Lifetime Value (LTV)

Here’s LTV broken down visually

Lifetime Value (LTV)

Visuals and definitions are great but…why should you

even care?

Lifetime Value (LTV)

“Want your SaaS to last? LTV is the fountain of youth, the key

to your SaaS company’s longevity”

Lifetime Value (LTV)

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

SalesImprove projections and

help accurately determine the companies profitability

FinanceMarketingIdentify which channels and

marketing programs bring in the best

customers

See the breakdown of your LTV with ProfitWell >>

Lifetime Value (LTV)

Lets go deeper and calculate LTV like a #SaaS superstar

Lifetime Value (LTV)

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 ExcludeARPA

(Average Revenue Per Account)

Inactive Users

Customer Churn Delinquent Customers

Lifetime Value (LTV)

Calculating LTV is all about ARPA & Churn

LTV EQUATION:

LTV SIMPLIFIED:

EXAMPLE:LTV

LTV Calculation Breakdown

Lifetime Value (LTV)

ARPACustomer Churn Rate

Sum of all customer MRR / Total # of customers

# of customers who churned / Total # of customers

$100 ARPA0.1 Churn

Rate$1000 LTV

Once you master calculating LTV you can

benefit your SaaS business even more by

optimizing it

Lifetime Value (LTV)

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)

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 OptimizationCross-sell – Upsell

Visitors

Stranger

Leads

Opportunity

Customer

Lifetime Value (LTV)

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 OptimizationProduct line expansion

Lifetime Value (LTV)

PRODUCT

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 OptimizationScalable Pricing

Lifetime Value (LTV)

Boom. Now you can maximize your SaaS longevity with your

new mastery of LTV

Lifetime Value (LTV)

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Lifetime Value (LTV)