Measuring LTV is important for a SaaS company because it helps to track the long-term value of your customer base and make informed decisions about marketing and sales efforts. It can also help you allocate resources to customer acquisition and retention activities that are most likely to drive long-term value for the business.
To calculate customer lifetime value (LTV) in a SaaS (software as a service) company, you can use the following formula:
LTV = (Average revenue per customer) x (Average customer lifespan)
This will give you an estimate of the total amount of revenue that a customer will generate over the course of their relationship with your company.
To calculate average revenue per customer, you can sum up all of the revenue generated by a customer over a given period (e.g., a month or a year) and divide it by the number of customers.
To calculate average customer lifespan, you can estimate the length of time that a customer is likely to continue using your service. This can be based on historical data or industry benchmarks.
Here's an example of how to calculate LTV:
Let's say your company has 1,000 customers and the average revenue per customer is $100 per month. Your total monthly revenue is 1,000 x $100 = $100,000.
If the average customer lifespan is 36 months, your LTV would be:
LTV = $100 x 36 = $3,600