Glossary
Customer lifetime value
Customer lifetime value estimates the gross profit a customer produces before leaving, usually average revenue times gross margin divided by churn. It is an estimate built on two other estimates, so treat it as an order of magnitude rather than a figure to carry to four decimal places. Use gross profit, not revenue, or every customer looks profitable.
01
How much weight a lifetime value figure can carry
Never a weekly row. It is a planning number, recalculated once or twice a year, that decides how much you can afford to spend winning a customer. The weekly rows underneath it are the retention ones: onboarding milestones on time, check-ins held, accounts flagged at risk well before the renewal date arrives.
Most published versions use revenue instead of gross profit, which overstates the answer by whatever delivery costs you have. The second problem is the divisor: a young company has no idea what its real churn rate is, so the guess is baked into the result. Useful for deciding whether a channel is roughly viable. Useless as the basis of a business case.
Worked example: An equipment rental business calculated lifetime value at eleven thousand dollars, using revenue and a churn guess of five percent a year. Recalculated on gross profit with three years of actual data, it came out at two thousand nine hundred. The sales incentive built on the first figure had been paying more for a customer than the customer returned.
Sources: klipfolio.com/kpis/saas; kpi.org/kpi-basics/dashboarding-and-analysis
Customer acquisition cost
Customer acquisition cost divides everything spent winning customers in a period by the number of customers won, salaries and commission included.
02Churn rate
Churn rate is the share of customers, or of recurring revenue, that goes away in a period: customers lost divided by customers at the start of it.
03Gross margin
Gross margin is revenue minus the direct cost of delivering it, as a percentage: a ten thousand dollar job costing six thousand runs at forty percent.
04KPI examples by department: sales, ops, finance, HR
Concrete KPI examples for each department in a small company, tagged leading or lagging and weekly or monthly, to help you build a Scorecard that works.
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