Customer lifetime value (CLTV) measures the expected revenue from a customer for the duration of their relationship with your company. When you group cohorts and measure CLTV against other cohorts, you will be able to measure which cohort is your most profitable. This insight can help you determine where to focus your growth efforts and budget.
CLTV for SaaS companies is often calculated and paired with Customer Acquisition Costs (CAC). The ratio of CLTV / CAC takes your cohort analysis further by including the sales and marketing costs. An optimal benchmark CLTV to CAC ratio is 3 to 1.
To calculate CLTV, you subtract the customer acquisition cost (CAC) from the expected recurring profit of a customer. As CLTV includes renewals, upsells and more, your calculation may rely more heavily on estimates if you are a seed company, and more on data, including churn, as you mature. Many cloud accounting solutions for SaaS companies include a SaaS metrics dashboard and automate CLTV calculations with real-time data.
