The Customer Lifetime Metrics show the most relevant viability metrics which are also traffic light indicators. Please make sure that you filter the right revenue stream for this analysis. If you select more than one revenue data, this data might not make too much sense.
The following explanation is based on the data in the above screenshot.
- LTV/CAC Ratio. It is a long-term indicator which shows how many times the LTV exceeds the CAC (for SaaS B2B businesses this should ideally be greater than three) and because it is 6.1 this traffic light indicator signals a green flag
- Months to Recover CAC – is a short-term indicator which defines how fast you recover the CAC For a SaaS B2B This should ideally be faster than 12 months and because it is 16.2 This traffic lightis a red flag
Be aware that the traffic light indicators are benchmarks which can vary across stage of the company, exact business model, regions, …
Let’s understand how the unit economics are calculated and start with Customer Lifetime Value for which we require revenues, churn and CoGS
- The 3% Churn Rate upon Contract Renewal which is quarterly has been converted also in a Monthly Churn Rate of about 1.01%. There is a specific conversion formula for this which you can look up in our help center.
- We need the Monthly Churn Rate to actually Calculate Customer Lifetime in Months. Customer Lifetime wich is 100 divided by the monthly churn rate resulting in a cutomer lifetime of 99 months
- Customer Lifetime Value – thereby calculates as Average MRR of €500 x Gross Margin (80%) x Lifetime in Months (99)
- Annualized Lifetime Value is the Lifetime Value for 1 year – it basically calcutales by dividing the customer lifetive value by the lifetime in months and multiplying this by 12
Now lets see how to calculate Customer Acquisition cost which requires the Cost of Marketing and the Cost of Selling
- We have already calculated the ingredients for Customer Acquisition Cost – it is made up of the Cost of Selling plus the Cost of Marketing
- Remember Cost of Selling per Customer is € 500 - the 5000 Cost per Sales Team divided by 10 new customers per month
- And Cost of Marketing is € 6000 – based on the €60 Cost per Lead and the 1% conversion rate
And now you have all ingredients to calculate the Viability Metrics
- The LTV/CAC Ratio is simply LTV divided by CAC and
- The Months to recover CAC is CAC divided by Annualized LTV multiplied 12