Everyone in SaaS talks about CLTV: Customer Lifetime Value; also known as LTV. (I try to avoid acronyms, but sometimes I just gotta use 'em).

You can see a detailed analysis of how to calculate Lifetime Value by David Skok at Saas Metrics 2.0.

And then, everyone goes on to calculate some magic metric telling you how much to spend on Sales and Marketing, usually some fraction (1/3 or so) of your CLTV, or about the first year's worth of revenue from a customer. Sounds fine, so long as you have the money to fund it.

The problem is that this doesn't go far enough. Standard CLTV calculations don't account for virality and "second order" customers - the ones that come in later, from the first customer referring their friends.

In other words, your average CLTV should be higher because the first customer should get extra credit for helping bring in their friends to your company.

By underestimating the value of a customer, you may underinvest overall in acquiring them. Or - more commonly - you invest too much in Sales and Marketing and not enough in Customer Success.

Total Lifetime Revenue From A Single Average SaaS Customer:

Ok Sales closes its average Enterprise Customer A for $10,000 a year. Nice.

Then, in Year 2, average Enterprise Customer A adds $2,500 in additional licenses, for $12,500 total in Year 2.

Then in Year 3, they add another 25%, or $15,625 total.

So: direct revenue over the first three years = $38,125 from that First Sale.

Now most customers last longer than 3 years, but let's stop there for now…

Now: Second Order Effects

* At the end of Year 1, your champion quits Enterprise Customer A, but goes to Enterprise Customer B to do the Exact Same Job. And buys your product again. (This happens about 10% of the time.)

* So that first sale is actually worth $42,000 (that first $38k above x 110%). But then it happens again in Year 2. So it's really $46,000.

* And at the end of Year 1, your champion tells three of her friends about your company. And one of them purchases. (About 30% of the time.)

So the first sale is actually worth $60,000 with the second order revenue - if you're making your customers super duper happy.

So your "all-in" CLTV, including second-order revenues, could be 2x your current estimate.

So sure, figure out the perfect ratio of Sales and Marketing costs to CLTV to share with your board.

Because the second order effects compound. This is where "Seeds" becomes a growth driver. They're essential to fast, profitable growth.