Why Does My Customer Life Look So Long in My CLTV Report?
Q: I’ve entered several offerings and my recurring SaaS app-based offerings has a super long customer life of 400 months on my Sales Detail report:
Here are a couple of screen shots for that offering where you can see the 400 month life:
Can please tell me why it is so high and how I make that more reasonable?
A: You’ve entered a 12-month contract at a 97% renewal rate in your assumptions input for that offering, so you have a very long customer life of 400 months that is nearly “eternal” because of your very high renewal rates:
For example, if you enter a 12-month contract with a 0% renewal, your Customer Life would be 12 months, entering 12 months @ 50% renewal rates would be a 24-month life, entering 12 months @ 75% renewal rates would be a 48-month life, and entering 12 months @ 100% renewal rates would be infinity. The higher your renewal rate, the longer your average customer life.
If you are trying to represent a more reasonable Customer Life assumption, simply shorten your contract term or lower your renewal rate.
Most SaaS apps have a contract term of 3 months (quarterly) or 12 months (annually) with renewal rates between 50% and 75%, and would rarely achieve anything in the 90%+ range.
However, if you are confident that you renewal rates are 97%, you should stick with that assumption and simply defend your long Customer Life based on the reasons you believe your customer churn will be so low.