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For subscription is booking/opportunity amt a) the lifetime value or b) the first year revenue?

Trying to figure out the pipeline value. We have subscription and services and we bill quarterly or annual. When we put in the opportunity amount in CRM, would we put the amount equal to:
a) expected life time value
b) first year subscription and/or services

7 Replies

Andrew Lockley
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0
Andrew Lockley Advisor
Investor and strategy consultant
What's contract length?
Chris Bechtel
0
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Chris Bechtel Advisor
Digital Marketing Executive, Customer Acquisition, SaaS Sales Coach, Start-Up Advisor and Growth Hacker
The most important thing here is to be consistent. So if you put in the LTV, then Always put in the LTV. In terms of which to put in, it's really based on how do you need, or prefer, to be forecasting your revenue. This preference will be based on the stage of your growth as well as how/when you are recognizing that revenue. It's also important to note that a pipeline report is a very optimistic view of what might happen in the future. You want to use it to ensure you have enough deals in the pipeline that based on your close ratios will generate the actual revenue you need to meet your cash requirements and growth goals. There are additional options in some crms that allow you to then recognize that revenue across months and years and then output a projection by month. To keep it simple to start, I'd recommend putting in the ltv. So you can see the total value of each new customer and measure your customer acquisition cost against their total value. Hope that helps. Chris Bechtel [removed to protect privacy]
Michael Brill
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Michael Brill Entrepreneur
Technology startup exec focused on AI-driven products
Gopi, think about why you want to track opportunity amounts. The two reasons are probably (1) to help you prioritize sales efforts and (2) forecast revenue/cashflow. LTV won't help you with #2 and in most cases it's no better than revenue for #1. It's conceivable that there are prospect attributes (e.g., industry) that drive LTV, but do you really have the model that converts those attributes and deal size into LTV.

If not, then working with LTV is simply an abstraction that distances you from the reality of your business... and for a startup it's a SWAG anyway.

Subscription revenue is easier to understand, more motivational to salespeople and it tells you how much cash you've got coming in.


John Petrone
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John Petrone Entrepreneur
CTO at LaunchPad Central
I'd stick with something like monthly re-occurring revenue (MRR) assuming you are fairly early stage, as opposed to LTV. Why? Very few early stage startups have any handle at all on LTV and won't until you get some actual operation history. Once you get some real attrition, upsells and downgrades under your belt you'll be better able to accurately calculate LTV.

For an annual contract you won't know anything at all about churn rates until you've got enough customers that have passed the 1 year mark. MRR is easy to calculate and maps directly to revenue coming in the door - which gives you a much better idea of about how your business is doing month to month.
Gopi Mattel
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Gopi Mattel Advisor
Director, Chennai Area at The Founder Institute
Thanks for all the answers. I reached out to other sources. And this answer was from a VC I know. It actually was the clearest for me. Luckily that was close to how we assessed our Opportunity already.

--

Contract amount!

Not lifetime value, but first contract amount.

If it's a month-to-month contract for $1000, that's the opportunity amount.

It it's a 12 month contract (Regardless of billing frequency, annual or monthly), then the oppty amount is $12,000.

If it's a 3 year contract (regardless of billing frequency) it's a $36k oppty.

-- Thanks Rob.!
Andrew Lockley
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0
Andrew Lockley Advisor
Investor and strategy consultant
That's exactly what I said, and it was the first answer you got! Andrew Lockley Andrewlockley.com
Christopher Coyle
0
0
Managing Director
Always go with conservative approach that is reasonably based on facts.
You may want to include right upfront a churn factor that may actually lower your forecast of average subscription revenues.
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