Within a SaaS business, there are many possible metrics that you can make to have control of your company’s situation, some of them are essential.
Well, one of the most widely used and reporting key figures is the LTV. It links us to the net worth of the income generated by a customer during their lifetime in our company, that is, from their first order/subscription to the last.
Why is it so important to increase LTV?
In successful SaaS business models, it is a value that generates information that compared to other metrics can help us optimize our business. In this case, the LTV tells us what a customer generates in their life with us, so we should compare it to the CAC (Cost per customer acquisition).
When comparing it, we must have to LTC > CAC, so we will know that what a customer spends in our company is greater than what it has cost the company to generate that customer.
What values is the LTV calculated with?
There are many ways to calculate LTV defined by different authors. In one of our SaaS posts, we propose an elaborate way to do it to have more data available.
Still another of the valid and easier ways to calculate is through ARPU, which is calculated by dividing total revenue by the total number of users.
The ARPU data will have to be divided between the Churn Rate. This calculation will be made over a stipulated period.
How do I improve my LTV?
Gather your data
It is of great importance that your data does not deceive you. Focus on generating as much data as possible. This will make you aware of what is happening within your company being able to analyze reliably.
Build your own data storage tool or contact companies that have the capacity and knowledge to do so. It’s going to be a big investment.
Segment your analyses
Once you have the data, do a smart study of it. When you already own a product, the data, you must know how to treat it and the best way to conclude will be to segment.
For SaaS businesses, behavioural segmentation is one of the best ways to understand your data. For example, we can segment users who subscribe to a higher plan or upgrade, analyzing whys. That is, we will analyze if the upgrade has been to carry out more projects, to have some extra utility, to use it by more users…
Other ways to segment would be:
- By use (general, moderate, and low) and calculate the LTV separately for them.
- By spending habits: It will help you place CTA notifications well.
- Cohort Analysis: Focuses more on external aspects of the customer. Looking at geographical areas or procurement channels will give a differential meaning to the rest of your analyses. It can give you even more value.
Customize the service
Once you’ve managed to analyze the data, the best thing you can do is generate extra value for each user, that is, make them feel special.
If you notice that a user has special behaviour or that you can incentivize them with something others don’t have, do so, earn their trust.
For example, if that user has been using your app for “x” days, reward them with a discount or a demo of a premium option.
That customization will make the user see that you have control over it, you know who it is and that you value its commitment to your product.
Have direct contact with your customers by email, know what your favourite hours of use of the app are, offer personalized help and get you involved in the company with your opinion.
Adjust your pricing model
For a SaaS business, the price takes an important role when it comes to acquisition. You should try to give your customers a good opinion about your product at first look.
To get an optimal price for your product you must consider three things:
In the following articles, you will find a lot of relevant information to help you choose the best way to increase your revenue through prices, which will surely cause your LTV to also follow a growing course.
There are many types of SaaS products and businesses so everyone will have to act accordingly with their opportunities.
Data for a SaaS company must be vital, as it will reveal both the benefits and disadvantages of the options we’re adapting.
As we test any of the above actions, continue to analyze your data and get the answers to your questions from it.
If you need help with your SaaS strategy, feel free to contact us.