When it comes to building a Software as a Service business, there are some key metrics that every software company needs to know. Key metrics include conversion rates, Monthly Recurring Revenue (MRR), Average Revenue Per Customer or User (ARPC or ARPU), Churn or Attrition, Customer Acquisition Costs (CAC) and Customer Lifetime Value (CLV).
I recently gave a talk at Phoenix Startup Week where I show exactly how to calculate these metrics for your company. If you are interested, check out the video!
Nicely explained, Hamid.
Something that gets me a bit dizzy is how far to get into this LTV v CAC calculation when you take non paid for viral referrals into account.
For example. say my LTV is $18 but my CAC is $30 – on the surface that looks like a really bad scenario, but I also know that my viral coefficient is pretty healthy and each user brings on about 0.5 other users.
So for every two users acquired, I get a free one, and for every two free ones, I get another free one and so on and so on. This throws LTV and CAC into a bit of a vortex with the only conclusion being – just spend as much as possible on acquiring new users as CAC average keeps coming down!!