How can consultancies and service businesses calculate LTV if they don’t have license fees, or where most customer revenue is realized a long time after the deal is made?
I made a video talking about how B2B founders and CEOs shouldn’t hire for sales if their LTV isn’t yet 3x of CAC (linked below).
I have made a video explaining what other metrics B2B service CEOs and founders can use if LTV seems hard to calculate:
Instead of LTV, you guys can look at another metric called 'Cash Collected within 30 days after the deal closed'.
This can be:
- The first workshop you invoice,
- Your onboarding fee,
- Or any first invoice you send to the customer.
The trick is to optimize for Cash Collected to be higher than your CAC. If you manage to get this done, it will be a lot easier to:
- Hire for sales,
- Onboard more new customers more quickly (at least there won't be a cost issue),
- Optimize for faster value delivery to your customer.
If you manage to get your Cash Collected to be as high as 3x your CAC, you can shout high five and push forward.