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

Should Expansion Revenue Be Included or Excluded From LTV

SaaS Metrics School