If you’re just getting into SaaS analytics, one of the most important metrics to understand is Lifetime Average Revenue or also known as LTR. This metric helps us put everything into perspective regarding how much money customers are spending within our business.
Learning how to calculate Lifetime Average Revenue allows you to see the long-term value of your customers. It’s a way to find out exactly how profitable your customers are. That helps you focus on the right leads and interact with the best customers.
What is your Lifetime Average Revenue? Chances are, you don’t know the answer to that question. That’s okay, though, because we’re going to help you figure out your Lifetime Average Revenue. In this post, I will be talking about what Lifetime Average Revenue is, why you should want to know it–and how to calculate it. Let’s get started!
The Lifetime Average Revenue (LTR) is a term coined by Mike McDerment of Freshbooks.com back in 2010. The concept is simple and quite important to keep in mind when trying to grow a SaaS business: find ways to make customers more profitable.
One way to increase the LTR is to encourage upsells — for example, search for opportunities where your product or service could be tied into an existing customer solution, or create a package that includes multiple services that your customers would probably need anyways.
How To Calculate Lifetime Average Revenue
To calculate the Lifetime Average Revenue you need to sum all existing customer revenues and then average the result among the total number of existing customers. It’s as simple as that.
|# of customers||Subscription Fee||Months||Revenue|
In this case, the LTR is USD 3,730 and the Average Tenure is 15 months.
What is Average Tenure in SaaS Industry?
Well, it’s a number (the average length of time a customer stays on your product) and something we all want to get better at. You might wonder why you should care about improving it. The answer is simple: because you can earn much more money by retaining your customers for longer. People who stay for longer pay more, so the best way to get more money from your customers is to keep them around.
In the example above, the average tenure is 15 months. So, a customer stays with our company for at least 15 months and spends an average of USD 3,730.