## Introduction to SaaS LTV Estimation

When navigating the world of Software as a Service (SaaS), understanding your customer lifetime value (LTV) is crucial. Our SaaS LTV calculator aids in analyzing sales and estimating the average net profit from a customer over their entire engagement with your service.

The calculator operates in two modes: simple and advanced. Let’s start by dissecting the parameters in the simple mode.

## ARPA (Average Revenue per Account):

This is the money earned from each subscription account per month.

## Gross Margin:

Representing the profit retained from each revenue dollar, it is calculated as (revenue – costs)/revenue.

## Churn:

The percentage of users discontinuing the service each month.

The average net profit from one customer account throughout their engagement.

How to Calculate ARPA

# of Customers:

The total number of users.

MRR (Monthly Recurring Revenue):

The total predictable revenue stream, calculated by adding payments from all customers.

Account Expansion: A value simulating an increase in ARPA, indicating additional monthly payments.

The SaaS LTV calculator employs the formula:

���=(0.5×1churn×(2×ARPA+ARPA_growth×(1churn−1)))×marginLTV=(0.5×churn1​×(2×ARPA+ARPA_growth×(churn1​−1)))×margin

Using the LTV Calculator: An Example

Let’s walk through an example:

1. Number of Customers: Assume you have 25 customers.
2. MRR Calculation: Total monthly revenue is $6,000. 3. ARPA Calculation: Automatically derived from MRR and customer count, in this case,$250.
4. Gross Margin: Deducting 35% for maintenance costs, the gross margin is 65%.
5. Churn Rate: If one of 25 customers cancels, the churn rate is 4%.
6. Account Expansion: Assume it’s $0 for no expansion. 7. The LTV calculator yields$4,062.50 as the LTV for each customer.

Understanding and utilizing the SaaS LTV calculator empowers businesses to make informed decisions regarding customer engagement and revenue strategies.

This guide ensures you navigate the world of ROAS effectively, helping your business thrive in the digital advertising landscape.