This makes a 5% increase in prospects, conversion rate, or price cause a 5% increase to LTV (and, eventually, to the enterprise value of the company). A 5% decrease in churn (measured against one's current churn rate, e.g., 5% -> 4.75%) has a slightly more than 5% impact to LTV / enterprise value.
So many decisions about running a SaaS company fall directly out of this equation. Competent SaaS operators memorize it or, for less mathematically oriented operators, can at least summarize the relationships implied.
LTV = prospects * (conversion rate to paying) * (average price point) / churn
This makes a 5% increase in prospects, conversion rate, or price cause a 5% increase to LTV (and, eventually, to the enterprise value of the company). A 5% decrease in churn (measured against one's current churn rate, e.g., 5% -> 4.75%) has a slightly more than 5% impact to LTV / enterprise value.
So many decisions about running a SaaS company fall directly out of this equation. Competent SaaS operators memorize it or, for less mathematically oriented operators, can at least summarize the relationships implied.