# Simple Customer Lifetime Value Step-By-Step Financial Calculator

### Return on Investment (ROI)

Sales and Marketing

SaaS Metrics

## What is Customer Lifetime Value?

Customer lifetime value (LTV) is the average total revenue you expect to earn per customer. In it's simplest form, the customer lifetime is determined by the monthly revenue for the customer x the anticipated number of months' retention.

## How to Calculate Customer Lifetime Value

This simple metric is most often combined with several other SaaS calculations to produce a key set of SaaS monitoring numbers.

The LTV:CAC ratio is a measure you will visit often. It is a key indicator of the potential viability for your SaaS company. While there is no one absolute ratio, 3:1 or greater is generally accepted as a healthly number. Anything below this ratio is a red flag to revisit the individual SaaS metrics.

 Your calculations can be based on any period or product category. Just be sure that all of your numbers are for the same period and product.. Number of Customers MRR per Customer \$ Margin % Churn Rate % Customer Acquisition Cost (CAC) \$

## How to Calculate SaaS Health

• Determine the packages you offer and the monthly pricing for each.
• Determine the number of subscribers for each package.
• Determine the average subscriber lifetime (retention) for each package.

• Your CRM and accounting system are excellent sources for this information.

Example ...

 Package Monthly Price # Subscribers Avg. Months Starter \$ 10 500 12 Growth \$ 25 1000 30 Premier \$ 75 750 24 Total Subscribers 2250

Monthly recurring revenue (MRR) = ((\$10 x 500) + (\$25 x 1000) + (\$75 x 750)) / 2250 = \$ 96,250 / 2250 = \$42.78

Average revenue per account (ARPC) = ((\$10 x 500 x 12) + (\$25 x 1000 x 30) + (\$75 x 750 x 24)) / 2250 = \$ 960

 B2B Solutions Company Total Subscribers 2250 Customer Acquisition Cost (CAC) \$ 300 Average MRR per Customers \$ 42.78 Monthly Churn Rate 2.3 % Margin 85 % LTV \$1,581 LTV:CAC Ratio 5.27

(\$42.78 x .85) = \$36.36 / .023 = \$1,581

\$1,581 / \$300 = 5.27

### Simple Customer Lifetime Value Formula Cheatsheet

From the MRR calculator:

• MRR = Monthly subscription revenue per number of customers)

• From the churn calculator:

• Churn = ((Ending customer count - beginning customer count) = gain/loss / beginning customer count)

• From the gross margin calculator:

• Gross margin = (Revenue - cost of goods sold) / revenue

• Putting it all together:

• (MRR x margin) / churn) = LTV per customer

• LTV:CAC = LTV/CAC

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