What is Customer Lifetime Value?
Customer Lifetime Value is an important metric for SaaS businesses. It indicates how much revenue, on average, each of your customers will bring your business.
How to calculate CLTV?
To calculate customer lifetime value you will need to first know, on average, how long your customers remain customers before cancelling (churning). You can use historical data based on your current and past customers to determine this.
Next you will need to know your average monthly revenue. To find this sum up your current MRR across all of your customers and divide it by the total number of customers (total MRR / number of customers).
Now take your average monthly revenue x average lifetime value (in months). This figure represents your Customer Lifetime Value.
Comparing this number to your Cost of Goods Sold can show you how much you are spending to bring new customers on and see what your eventual return on investment will be.