LTV or Customer Lifetime Value or CLV is one of the key SaaS Metrics. It is a simple and powerful measure which is essential to the startup financial model. There are slight variations in definition but only a few essential elements. A quick primer/ reminder:
Keep it Simple - Use the Definition that works
Search for LTV and you will find a surprising number of articles with titles like “Why is your LTV wrong?” or “Mistakes everyone else makes in working out LTV.” There are a lot of nuances to LTV. My view is simple. Use the formula which makes most sense for your businss. Getting value out of the metric is about listening. Not about picking holes in the detail.
Learn to Listen if You Want Answers
What can LTV tell you and how can you use that information? For many businesses the measure is a way of evaluating marketing strategies. Others use it to forecast revenues and profitability. It also provides a window on the customer lifecycle.
All valuable insights. All available if you learn how to listen. Startup consulting and startup tools offer ways to answer these questions. Trouble is lots of people think the metric is telling you. To get the benefit you need to be more subtle. Think of it like listening to feedback from your boss. The body language, context, timing and language are essential to understanding the message.
SaaS Metrics for SMEs - What is LTV saying?
3 Smart Ways to Use LTV
Some SME SaaS specifics to watch for when listening to LTV:
LTV is a great source of insight into your business. It is not a single source of truth. Every customer is an individual.
Be smart about LTV by doing three things: Listen to the signals and make strategy decisions based on what you hear. Treat every customer as an individual and make sure your interactions stay personal. When you lose a customer or fail to convert a free trial, be nice. There is every chance that customer could be back. If you want to know more about using LTV as a tool for listening to your customers and making better decisions, subscribe below. Good luck.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.