In episode #333, Ben answers a foundational SaaS metrics question: Should expansion revenue be included in your Lifetime Value (LTV) calculation? Ben walks through the correct LTV formula and highlights how misalignment between LTV and CAC can distort your LTV:CAC ratio. He also covers when expansion should be included.

The episode provides a practical framework for SaaS founders, CFOs, and operators to ensure they calculate LTV accurately, compare it properly to CAC, and model unit economics using consistent, reliable inputs.

Key Topics Covered

• The correct LTV formula using average new-customer MRR × subscription gross margin
• Why the churn input should align with dollar-based metrics using 1 – Gross Revenue Retention (GRR)
• Why expansion revenue is deliberately excluded from LTV in most SaaS models
• How including expansion artificially inflates the LTV:CAC ratio
• The cost mismatch between acquiring new customers (CAC) and generating expansion revenue
• When PLG motions justify including limited, time-bound expansion revenue in LTV
• How organic upgrades differ from sales-assisted expansion
• How SaaS+ businesses must adjust their LTV formula to account for usage revenue
• The role of gross margin in determining true unit economics
• The importance of aligning metric definitions when evaluating customer profitability

Why This Matters

This episode is essential for:

• SaaS founders calculating LTV for budgeting, pricing, and forecasting
• CFOs, controllers, and FP&A leaders managing unit economics and CAC payback
• Finance teams modelling customer profitability and revenue expansion
• Operators working in PLG environments assessing organic expansion patterns
• Investors reviewing LTV:CAC ratios in diligence and portfolio monitoring
• Anyone building SaaS Plus (subscription + usage) revenue models

Resources Mentioned

Ben’s deep dive on SaaS+ LTV: https://www.thesaascfo.com/how-to-calculate-ltv-with-variable-revenue/

SaaS Metrics course: https://www.thesaasacademy.com/the-saas-metrics-foundation