Enter the revenue per account, gross margin, and churn % into the calculator below to determine the value of your software as a service.
The following formula is used to calculate the lifetime value of a software as a service.
LV= [0.5 * 1 / churn(%) * (2 * RPA + RPA_growth * (1 / churn(%) – 1))] * GM
- Where LV is the lifetime value
- churn(%) is the percentage of customers that cancel each month
- RPA is the revenue per account
- GM is the gross margin (%)
The answer to this question is displayed nicely in the equation above. To increase the lifetime value, you must do at least one of the following; decrease the churn%, increase the RPA, or increase the margin.
The RPA of a service can be increase by simply increase the price of the service, however, this doesn’t often go over well with the customer and leads to a higher churn (%). Instead, it’s best to offer new feature along with this price increase.
Two words: Customer Service. Provide excellent customer service and you will retain clients no matter how bad your software as a service actually is. People want to feel like they are cared for.