2 builders who never spoke to each other

Work out what a customer is worth before spending

Cancellation rate gives you how long they stay, that times the monthly fee gives lifetime revenue, and dividing by the trials it takes to produce one customer gives the worth of a single signup, which is the number that sets an acquisition budget. Where churn is very low, trial conversion becomes mathematically the highest value thing to improve. Get the client to compute their own equivalents, and convert your revenue gap into customers per day so you know whether the plan is arithmetically possible.

The method

1. 01

   Use cancellation rate to work out how long a customer stays, then use lifetime revenue to set your acquisition budget.

2. 02

   Work out what one customer is worth by multiplying the monthly fee by how many months they stay, then divide by how many trials it takes to produce a customer to get the worth of a single signup.

3. 03

   Work out the lifetime value of each plan first, because very low churn means trial conversion is mathematically the highest-value thing you can improve.

4. 04

   Retention can substitute for price: a cheap product nobody ever cancels reaches the same lifetime value as an expensive one.

5. 05

   Convert the revenue gap into customers per day so you know whether the plan is arithmetically possible.

What it returned

• $50

  His worked figure: a customer paying $50 a month who stays 30 months is worth $1,500, which then answers how much you can spend to win one and how many you need for $10m of revenue.

• $50

  In the worked example a customer paying $50 a month for a year is worth $600, and with one paying account per ten trials each trial is worth $60.

• 1%

  With churn under 1%, lifetime value on Storemapper's popular plans exceeded $1,000 per new customer

• $1,279

  Storemapper's lifetime value of $1,279 on just $16 per user came within reach of Promoter's $1,391 on $97 per user, because its average customer was projected to stay nearly seven years

Sources

• What Should You Ask Of Your Clients Prior To Roadmapping? - Double Your FreelancingBrennan Dunn · doubleyourfreelancing.com · 3. Financial · 2016-11-03
• How To Socratically Question New Project Leads - Double Your FreelancingBrennan Dunn · doubleyourfreelancing.com · How To Socratically Question New Project Leads · 2017-01-01
• The full story of “the one important thing” for startupsJason Cohen · longform.asmartbear.com · The full story of “the one important thing” for startups · 2011-10-03
• Web App Challenge Update: The Final StretchNathan Barry · nathanbarry.com · The sales problem · 2013-06-04
• Digging in to the Open Startups List - Tyler TringasTyler Tringas · tylertringas.com · Lifetime Value: the holy grail of SaaS · 2015-04-24
• Storemapper Update: 50% revenue growth in 3 months - Tyler TringasTyler Tringas · tylertringas.com · Onboard like a boss: convert the free trials! · 2014-11-06