Manage - Customer Lifetime Metrics

After entering all revenue related cost - you can check the unit economics and go to the Manage sub-menu to check the unit economics dashboard. You see 2 filters to select revenue stream contracts.

  • In the first filter, select the primary, revenue-generating revenue contracts for which you want to evaluate the unit economics.
  • in the second filter, select all cost-generating revenue contracts which carry cost related to the primary revenue streams.

For example, let’s pick the Revenue Contract “Basic” as the primary one to check its unit economics. However, not all of the cost related to those revenues is covered in that rev stream. In particular, most of the the cost of selling and cost of marketing which have an impact on the unit economics of the Basic Customers are covered by the rev stream contract Signups. So, we have to add that one to the cost related revenues streams  

The Customer Lifetime Metrics show the most relevant viability metrics which are also traffic light indicators.

Customer Lifetime Metrics

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 here.
  • 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

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

From DEMO

For example, let’s pick the Revenue Contract “Basic” as the primary one to check its unit economics. However, not all of the cost related to those revenues is covered in that rev stream. In particular, most of the the cost of selling and cost of marketing which have an impact on the unit economics of the Basic Customers are covered by the rev stream contract Signups. So, we have to add that one to the cost related revenues streams  

  • First of all, let’s check the cost of customer acquisition which we have calculated to be 6500. Magic! Our calculated number actually is close. However, it deviates a bit because of the Conversion rule which converts 25% of basis customers to enterprise customers. If you set the 25% to 0% (so that there is no conversion), then you would find exactly the $6500 number here. Actually, if you plan to set up your model in a similar way, you can avoid this issue by creating 2 separate revenue streams for Basic and Enterprise customers instead of modelling them as 2 contract into one stream.
  • Secondly, we see a weighted monthly churn rate of 3.6% which yields a customer lifetime of 20 months
  • Third, you can find the monthly gross profit which is average revenues – average cogs of 312.50$
  • If we multiply this gross profit by the lifetime of 20 months, we get the customer lifetime value which is hardly higher than the cost of customer acquisition.
  • Now we have all the ingredients to calculate the unit economics.
  • 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 much below 3 this traffic light indicator signals a red 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 this is much larger, this traffic light also shows red flag.

If we select the unit economics for the Enterprise plan, we can see that they are much better and turn green.

If we select the unit economics for both plans, they look ok. With an LTV / CAC Ratio of 2.3 you are not far away to spend more money on marketing and scale your business.







>