{"id":2631,"date":"2023-03-01T10:00:00","date_gmt":"2023-03-01T10:00:00","guid":{"rendered":"http:\/\/138.197.200.24\/resources\/blog\/customer-lifetime-value\/"},"modified":"2023-03-01T10:00:00","modified_gmt":"2023-03-01T10:00:00","slug":"customer-lifetime-value","status":"publish","type":"blog","link":"https:\/\/www.smartkarrot.com\/resources\/blog\/customer-lifetime-value\/","title":{"rendered":"Customer Lifetime Value \u2013 All You Need to Know"},"content":{"rendered":"
\n

Customer lifetime value is a metric indicating expected net profit from a customer including the whole future relationship. Know how to measure CLV.<\/p>\n

When you are running a SaaS business, there are different metrics you need to keep track of. These metrics help you align your business strategies into the right direction. Without these metrics you would have no accountability of your business and keeping the growth in check would become difficult, let alone taking the corrective measures. Out of all the metrics we use in SaaS, we are going to discuss one very important metric called Customer Lifetime Value (CLV) in this article.<\/p>\n

<\/div>\n

What is Customer Lifetime Value?<\/h2>\n

In a subscription-based business, wouldn\u2019t it be great if you know in advance for how long a customer would stay with you in business? Imagine the benefits of knowing in advance the revenue they would generate within this period. This would give you a clear picture of all the budgeting and other expenses you can afford to make while still keeping your profit margin wide. This is an information which every SaaS business would cherish and the metric that strives to give this information is what we call Customer Lifetime Value.<\/p>\n

Although it is not a constant value that would stay true forever, it is the best possible estimate which companies make about their revenue from a customer. In simple words, CLV is an estimated revenue generated by a customer during their entire relationship with a business before they leave it for good. It starts from the first time they purchase the product, then extends to their subscription renewal fees to the various other upselling and cross-selling revenues they generate for a company.<\/p>\n

<\/div>\n

Customer Lifetime Value Formula<\/h2>\n
<\/div>\n

CLV in SaaS vs CLV in other business<\/h2>\n

CLV is specially important in SaaS business because it is a long-term involvement you need to keep with your customer. For any other kind of business, it is not of much importance because the transaction is all about just one-time purchase of the product. For example, purchasing a Television. So, in that scenario, the cost price of the product boils down to the CLV and that\u2019s it. The relationship is mostly considered to be terminated after that. The marketing tactics and business model is totally different for this kind of transaction. They need to focus only on the quantity of purchase through their customers for their business growth.<\/p>\n

What differentiates SaaS from the above-mentioned business is that, here in SaaS, you need to also focus on the quality aspect of customer relationship. You need to maximize the customer\u2019s entire duration of being in business with your company. Hence, to achieve that there are lots of other factors that are brought into play. That\u2019s what makes customer success<\/a> an integral part of a SaaS business.<\/p>\n

<\/div>\n

Why CLV?<\/h2>\n