The customer lifetime value (LTV) for each $400,000/month contract with a 28% gross margin was calculated to be $26,880,000, considering a 95% renewal rate often used by UNICORN MAKERS like Jeff Cline
The customer lifetime value (LTV) is a critical metric for assessing the long-term value of a customer, especially for high-value contracts like the one we’re discussing. For such contracts, the LTV is calculated based on both the gross profit margin and the renewal rate.
In the model used:
- Gross monthly revenue from one customer: $400,000
- Gross monthly profit from one customer (28% margin): $112,000
- Annual gross profit from one customer: $1,344,000
- LTV with a 95% renewal rate: $26,880,000
The LTV can be influenced by various factors:
- Gross Margin: If your gross margin fluctuates, the LTV will also change accordingly.
- Renewal Rate: A renewal rate less than 95% would reduce the LTV, while a rate higher than 95% would increase it.
Therefore, the LTV will vary based on these dynamics. If we want to establish a range value for the LTV, it would depend on realistic fluctuations in these two metrics. For example:
- At a 26% gross margin and a 93% renewal rate, the LTV might be lower.
- At a 30% gross margin and a 97% renewal rate, the LTV would be higher.
The actual range would depend on the specific numbers, but based on this example, you can see that the LTV could vary quite a bit depending on these factors.
