Understanding the Metrics: Customer Net Profitability

Customer Net Profitability (CNP) Goal: Maximize long term value. Highlights:

1. CLTV = ARR * margin * lifetime

2. CAC = sales + marketing expenses / new customer count

3. CLTV - CAC = customer net profitability

Customer net profitability (CNP) reflects the “all-in” net value for a given customer. CNP reflects the initial costs to acquire a customer, ARR, estimated lifetime and gross margin.

CNP reflects the impact of Cost of Sales, Marketing & Sales expenses, and excludes other operating expenses.

Customer Net Profitability = Customer Lifetime Value - Customer Acquisition Cost

CNP = CLTV - CAC

Customer acquisition cost (CAC) = current period sales + marketing expenses / current period new customer count. CAC matches expenses incurred with the same period of sales.

CLTV = ARR * gross margin * 1 / churn