JUSTINE JACQUOT
Approx. reading : about 5 min
Customer Lifetime Value(CLV), is a key metric that helps evaluate the performance of SaaS companies. This measure is particularly important because it allows business managers to understand how much revenue and income they can expect from each customer throughout their entire business relationship.
Customer Lifetime Value (CLV) is a key performance metric used by businesses to evaluate the profitability of their customers in the long term.
In fact, this metric helps calculate the financial value that each customer will generate to the company throughout their entire business relationship. Therefore, this metric takes several factors into account,including customer acquisition costs, the average amount they spend on each purchase and the duration of their business relationship.
Thus, CLV(or LTV) allows businesses to better understand the profitability of each customer in the long term and therefore, enables them to make more pertinent decisions regarding marketing strategies, customer service or product evolution.
For example, by calculating CLV, the company will be able to determine the budget that it is willing to invest to acquire new customers.
It is important to keep in mind that CLV has two dimensions:
A financial one (in euros): this dimension represents the revenue generated by the customers in terms of sales.
A time dimension: This dimension represents the period during which the individual will remain a customer of the company.
First of all, it is important to understand that there are several methods to calculate CLV, but here is a common method:
CLV : Customer lifetime x Purchase Frequency x Average Basket Size
Here is an example to help you visualize the calculation:
Let’s say you are a company that offers a subscription based SaaS service and you realize that on average, the lifetime of your customers is 16 months.
Customer lifetime duration : 16 months on average
The purchase frequency is once a month (when the subscription is paid)
Billing frequency : monthly (once a month)
Finally, the average basket value is 400 euros by subscription/month.
Average basket value : 400 euros per bill.
Your CLV : 16x 1 X 400 = 6400 euros
Therefore, your customer will generate 6400 euros in revenue during the period he is subscribed.
This calculation will help determine whether the revenue generated by a customer over the course of their subscription is sufficient compared to the acquisition costs and retention efforts.
For example, if you have to spend 4,000 euros to acquire a new customer who generates a revenue of 6,400 euros, do you think this acquisition will be profitable? Don’t forget to take into account potential CHURN rate when calculating CLV.
It is important to remember that CLV is an estimation and can vary based on many factors such as changes in purchasing behavior, competition, or changes in the quality of product or service.
This is why we recommend you to regularly monitor your CLV and to use it in combination with other performance metrics to make pertinent decisions regarding marketing and business evolution.
Dotsha is the platform that automates the management of SaaS and subscription models. Contact us for a demonstration of our dashboard and its integrated indicators
Customer Lifetime Value(CLV)is an essential metric for Saas company executives, because it allows them to make more pertinent business decisions. Here are some of the most common uses of CLV for SaaS executives.
CLV allows SaaS executives to classify their customers based on how valuable they are for their company. By identifying their most valuable customers, executives can focus on providing a higher quality service to these customers, which can encourage their loyalty and increase their customer lifetime value(CLV).
By understanding average customer lifetime value, managers can identify the opportunities to maximize their revenues per customer all along their SaaS customer lifetime. For example, by investing in retention programs, personalized offers, product enhancements or targeted promotions, they can encourage their customers to stay longer and to spend more.
Customer Lifetime Value(CLV) enables SaaS company executives to measure the efficiency of their marketing and sales strategies. For example, by comparing the customer lifetime value of customers acquired through different marketing channels, they can determine which channels actually provide the best return on investment.
Customer Lifetime Value(CLV)can help SaaS executives make investment decisions by evaluating the expected return on investment for each customer. For instance, they can compare the CLV projection of a customer acquired through a high-cost customer acquisition strategy with that of a customer acquired through a more cost-effective channel, this way they can determine where to focus their marketing ressources.
In conclusion, Customer Lifetime Value is an essential metric for Saas executives, because it allows them to determine the long term value each customer can generate to the company throughout their business relationship and help them make more pertinent decisions in order to maximize this value.
As we have discussed in this article, CLV is determined by the revenue generated by each customer during their lifetime as a user of a Saas solution. Therefore, your objective is two-fold: to increase customer revenue and extend their retention period to the maximum.
Dotsha is a business management platform specifically designed for Saas companies, to maximize customer value by providing the tools, technology and solutions that will allow you to :
Dotsha enables you to harness your billing data in order to segment your customers and products portfolios, to find revenue opportunities within your current customer database. You could then create targeted offers and publish them in just a few minutes by using our paywalls, reducing time-to-market and enabling customers to subscribe by themselves.
Plan lifecycle
Automated billing
Collections
Dashboard
With our tools, you can create additional opportunities to monetize your options and create new features, while building customer loyalty in the long-term thanks to simplified and automated processes.
To learn more about our solutions, try our application for free or contact our sales team.
To learn more about dotsha and understand how we can help you eliminate the hassle of manually managing your management, feel free to contact our client support and request a demo.
JUSTINE JACQUOT
Approx. reading : about 8 min
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