How Can You Estimate Customer Lifetime Value in The Early Days? Just Use Comps

Q:  How can we estimate the lifetime value of a customer when the product is still in the early days?

You need to know 2 things to calculate lifetime value:

  • Value per year/month /another period of your average customer; and
  • The expected lifetime of that customer.

Multiply the two and you have the lifetime value.

Now … great … but what do you do with little-to-no data yet?

Look at comparables. There are now dozens and dozens of public SaaS and Cloud companies. Go read the metrics on the ones that are most similar to you, and model out for now.

Then, take a bit of a haircut to their metrics. You aren’t there … yet :).

The point is, there are now plenty of SaaS companies that have IPO’d.  At least one must be at least sort of similar to what you are doing.  Go look at their metrics on their website, in the Investor section.  The public SaaS and Cloud companies publish a ton of great metrics.  Those metrics will give you at least some goals to shoot for on NRR, growth rates, # customers, market size, etc.

Published on January 11, 2021

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