SaaS Metrics that Drive Valuations Series – Top CLTV Pitfalls

Navidar | December 19, 2016

Navidar has been the trusted advisor for many SaaS companies that call the middle-corridor of the U.S. home. Collectively, our team has completed more than 50 SaaS transactions, representing $10 billion in M&A, capital raises, and public offerings.

Customer lifetime value (CLTV) is among the key SaaS M&A metrics that drive valuation. Although CLTV is often ignored, we use it to our clients’ advantage by helping them avoid all-too-frequent pitfalls. The following top 5 CLTV missteps were compiled based on Navidar’s deep SaaS expertise. We have found that by appropriately analyzing, optimizing, and presenting CLTV, companies are more likely to achieve operational excellence as well as elevated valuations during exit discussions.

1. One-Off Exercise

Frequent Measurement and Course Correction

Some SaaS companies view CLTV as one-off or annual exercises. But, much like a ship on a voyage, if navigation is off by a fraction of a degree and it is not regularly measured or adjusted, the ship will never reach its intended destination. Navidar encourages the companies we work with to captureand actively manage CLTV on a quarterly basis at a minimum, ideally on a monthly basis. Frequent CLTV analysis not only ensures companies are on-course, but also provides insight into strategic alternatives, such as where sales-and-marketing and product-development dollars should be allocated to achieve desired results.

2. Lack of Segmentation 

Leave No Stone Unturned to Drive Valuation 

While an overall company CLTV can be helpful for identifying general trends and all-inclusive business health, Navidar helps companies identify value for different types of clients. We do this by breaking out characteristics, such as geography, industry, size, buyer persona, renewal or new client, and marketing channel (e.g., referrals and clients sourced though partners typically carry higher retention rates). We often find that this new insight fuels the appropriate strategic decisions that ultimately drive higher valuations.

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