Comments on: LTV: Another Metric in SaaS? http://ajnyc.wordpress.com/2009/03/21/ltv-another-metric-in-saas/ Speculation from a NYC venture capitalist Thu, 19 Nov 2009 21:41:00 +0000 http://wordpress.com/ hourly 1 By: ajnyc http://ajnyc.wordpress.com/2009/03/21/ltv-another-metric-in-saas/#comment-39 ajnyc Tue, 31 Mar 2009 02:40:32 +0000 http://ajnyc.wordpress.com/?p=168#comment-39 Jeff, Sorry about the delay, but I think you found a great link... I was in the process of posting a spreadsheet but I think the Bessemer guys covered it very well. Amish Jeff,
Sorry about the delay, but I think you found a great link… I was in the process of posting a spreadsheet but I think the Bessemer guys covered it very well.
Amish

]]> By: Jeff Lu http://ajnyc.wordpress.com/2009/03/21/ltv-another-metric-in-saas/#comment-38 Jeff Lu Mon, 30 Mar 2009 06:33:19 +0000 http://ajnyc.wordpress.com/?p=168#comment-38 Scratch my last comment. My question was addressed by Philippe Botteri of Bessemer in this great presentation: http://www.salesforce.com/community/crm-best-practices/dreamforce08-developer-sessions/2008-tdf-saas-finance-101.jsp Scratch my last comment. My question was addressed by Philippe Botteri of Bessemer in this great presentation:

http://www.salesforce.com/community/crm-best-practices/dreamforce08-developer-sessions/2008-tdf-saas-finance-101.jsp

]]> By: Seth Besmertnik http://ajnyc.wordpress.com/2009/03/21/ltv-another-metric-in-saas/#comment-37 Seth Besmertnik Sun, 29 Mar 2009 14:03:07 +0000 http://ajnyc.wordpress.com/?p=168#comment-37 Amish - this makes a ton of sense. I'd love to get your thoughts on how companies with limited operating history can calculate their LTV. It many cases if you just roll out your churn rate, the ltv can be for 10+ years which can seem unreasonable. As you get more data, this is easier...but what about for years 0-4? Amish – this makes a ton of sense. I’d love to get your thoughts on how companies with limited operating history can calculate their LTV. It many cases if you just roll out your churn rate, the ltv can be for 10+ years which can seem unreasonable. As you get more data, this is easier…but what about for years 0-4?

]]> By: Jeff Lu http://ajnyc.wordpress.com/2009/03/21/ltv-another-metric-in-saas/#comment-36 Jeff Lu Sun, 29 Mar 2009 05:47:02 +0000 http://ajnyc.wordpress.com/?p=168#comment-36 I like the point that your friend made, however, with early stage SaaS companies, it's hard to determine the LTV of a customer. For some companies, there just aren't enough data points to determine a credible LTV. Companies would have to make assumptions that's similar to the "churn" assumption and small tweaks to the value or life of a customer could really affect the model as you scale up. How are some ways that you're calculating the LTV for your SaaS portfolio? I like the point that your friend made, however, with early stage SaaS companies, it’s hard to determine the LTV of a customer. For some companies, there just aren’t enough data points to determine a credible LTV. Companies would have to make assumptions that’s similar to the “churn” assumption and small tweaks to the value or life of a customer could really affect the model as you scale up.

How are some ways that you’re calculating the LTV for your SaaS portfolio?

]]> By: AfricaCT http://ajnyc.wordpress.com/2009/03/21/ltv-another-metric-in-saas/#comment-35 AfricaCT Thu, 26 Mar 2009 17:45:56 +0000 http://ajnyc.wordpress.com/?p=168#comment-35 I think you (and your friend) make a very good point. With heightened competition in technology industry and the ability for a customer to switch products or services quite easily the lifetime value of a customer is extremely important when considering growth opportunities and value of the business. I often think about similar loyalty programs that have existed in other businesses to retain customers and whether there are some opportunities there for SaaS co's. The real significance I see for SaaS companies is i) your costs and ability to manage them are largely determined by how many customers you have and how long you keep them. Economies of scale are vital to the success of a SaaS business in my opinion. ii) SaaS provides (in most cases) lower barriers to entry and exit for customers. My ability to switch from Google Apps to Microsoft hosted services is pretty easy so, as you mention, those churn assumptions are crucial in the valuation process and long term growth opportunities for a SaaS business. In any event I think your point is very relevant. I think you (and your friend) make a very good point. With heightened competition in technology industry and the ability for a customer to switch products or services quite easily the lifetime value of a customer is extremely important when considering growth opportunities and value of the business.

I often think about similar loyalty programs that have existed in other businesses to retain customers and whether there are some opportunities there for SaaS co’s.

The real significance I see for SaaS companies is

i) your costs and ability to manage them are largely determined by how many customers you have and how long you keep them. Economies of scale are vital to the success of a SaaS business in my opinion.

ii) SaaS provides (in most cases) lower barriers to entry and exit for customers. My ability to switch from Google Apps to Microsoft hosted services is pretty easy so, as you mention, those churn assumptions are crucial in the valuation process and long term growth opportunities for a SaaS business.

In any event I think your point is very relevant.

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