Customer Lifetime Value

How should I calculate customer lifetime value?

There are different ways to calculate this metric, but our simple CLTV calculation assumes the length of time that a customer will stay with you (calculated from monthly churn) and multiplies that by the amount that the average customer will pay each month.

What if different customers stay for different lengths of time?

This isn't unusual – enterprise customers may stay with a SaaS business for three to five years, whereas smaller customers paying on credit card may stay just a few months. Large SaaS businesses will tend to segment customers accordingly and calculate different lifetime values based on the size of customer or average monthly revenue.

Where can I read more?

Our calculation is simple – it's worth spending some time looking at some of the more advanced ways SaaS practitioners and businesses think about and calculate customer lifetime value.

• David Skok on working out a TRUE customer lifetime value, factoring the risk and time value of money
• Kissmetrics using some interesting non-SaaS examples such as Starbucks
• Harvard Business Review on thinking more holistically about the value that a customer brings to a business