Calculating LTV requires a combination of ARPU, CCR and ACL; find out what that means below.
LTV, or Lifetime Value, measures the total revenue a customer will generate for a business over their lifetime. It is a key metric for SaaS (Software as a Service) companies, as it helps them understand the potential value of each customer and make informed decisions about acquisition and retention efforts.
To calculate LTV for a SaaS company, you will need to know the following:
Average revenue per user (ARPU): This is the average amount of money that each customer pays per month.
Customer churn rate: This is the percentage of customers cancelling their monthly subscriptions.
Average customer lifespan: This is the average length of time a customer remains a paying subscriber.
Once you have these numbers, you can use the following formula to calculate LTV:
LTV = ARPU * (1 / churn rate) * lifespan
For example, if a SaaS company has an ARPU of $100, a churn rate of 5% per month, and an average customer lifespan of 36 months, their LTV would be:
LTV = $100 * (1 / 0.05) * 36 = $7,200
This means that, on average, each customer will generate $7,200 in revenue for the company over their lifetime.
I hope this helps! Let me know if you have any other questions.