šŸ” LTV Secrets: Churn UnlockedšŸš€

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šŸŽ™ļø Hey there, SaaSpreneurs!šŸŽ™ļø

It's Ben Murray here, for another enlightening session on SaaS metrics. Before we dive in, todayā€™s newsletter is sponsored by Deel.

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Back to metricsā€¦

This week, we're diving into a vital topic for any SaaS businessā€”calculating Lifetime Value (LTV) amidst varying churn percentages.

Have you ever wondered which churn percentage to use for your LTV calculations? It's a question that keeps popping up and for a good reason! The LTV calculation is incredibly sensitive to the churn number we select.

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šŸ““Key Concepts to LearnšŸ’”

  1. The Importance of Accurate Churn Metrics in LTV Calculations:

    • Understanding churn is fundamental to determining your LTV. The sensitivity of the LTV calculation to the churn rate (used in the denominator) means that even minor inaccuracies can significantly skew your results. Ben emphasizes that this sensitivity can transform objective metrics into subjective ones if the wrong inputs are used.

  2. Period of Measurement:

    • Different periods of measurement can yield vastly different churn rates. Ben advises against using a single monthā€™s churn rate as it could present a misleadingly positive or negative picture depending upon your current business conditions. Instead, he suggests using trailing calculationsā€”either a trailing three-month annualized or a trailing six-month annualized rate. This approach gives a more balanced view of your retention profile.

  3. Choosing Between Trailing Three-Month and Six-Month Annualized Churn Rates:

    • Determining which trailing period to use depends on the volatility of your churn rates. If your churn has been stable or improving recently, a trailing three-month period might better reflect your current performance. Alternatively, if your churn is volatile, a trailing six-month period could provide a more accurate picture.

  4. Gross Revenue Retention (GRR):

    • Ben prefers using 1 - Gross Revenue Retention (GRR) to calculate the churn rate for LTV. GRR is instrumental in understanding revenue sustainability and customer value over time. This metric provides a nuanced insight into how well your company retains revenue from existing customers.

  5. LTV as a Point-in-Time Metric:

    • Your LTV is a snapshot of the financial profile of customers you are currently acquiring. Therefore, using data that is too old can misrepresent your current financial health. Ben recommends ensuring the data used is representative of your current retention efforts and financial profiles for more accurate SaaS metrics.

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If you found this episode helpful, make sure to tune in to future episodes of SaaS Metric School to broaden your knowledge of essential SaaS metrics and finance topics.

Got any burning questions or specific metrics you'd like us to cover?

Drop us a line, and we'll do our best to address them in upcoming episodes.

Until next time, keep hustling and measuring those metrics!

Best regards,


Ben Murray
Host of SaaS Metric School

P.S. Don't forget to subscribe to our podcast and share it with your SaaS business buddies. Together, let's conquer the world of SaaS metrics!

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