In this episode of "Foundations," the hosts break down the Lifetime Value (LTV) metric, specifically for SaaS companies. They start by defining LTV as the total revenue a company earns from a customer throughout their relationship, and place it in contrast to Customer Acquisition Cost (CAC). To illustrate the concept, they walk through a straightforward example using payment histories from two customers. The conversation then shifts to the significance of the LTV/CAC ratio, highlighting that a ratio between 3x and 5x is typically seen as optimal for sustainable growth. They also discuss the inherent challenges of accurately forecasting LTV, considering factors like customer churn and the evolving nature of SaaS offerings. By the end of the episode, listeners will have a clear understanding of how LTV plays a crucial role in investment conversations and why it’s vital to view this metric over time, rather than relying on a snapshot at a single moment.
