What Is Customer Revenue?

DEFINITION
Customer revenue is the total revenue generated from your customers. It can either be in the form of one-time sales or subscription sales.

💡Understanding Customer Revenue

Customers are the backbone of a business’s revenue. For a SaaS company, this is especially true since the product hooks customers and is the key to maximizing returns over the entire customer journey. Other sources of revenue can be attributed to interest or dividends.

Companies have realized the importance of gaining deep insights into the mechanics of revenue generation and the costs associated with it. This is why metrics like Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLTV) are so crucial.

In recent years, subscription revenues have started to take center stage in the SaaS space, and consequently, metrics like monthly recurring revenue (MRR) and annual recurring revenue (ARR) have dominated the conversation around customer revenue.

There are other sources of value generated from customers in addition to subscriptions. Customers often add value to your business via cross-sells and upsells. Some businesses also account for referral revenue which considers the amount of new business an existing customer brings in. 

These aspects of customer revenue together represent an overall understanding of the total revenue generated from all your customers put together.

Once you’ve achieved a comprehensive insight into these aspects, you can then begin to optimize customer revenue with a combination of personalized selling, pricing strategies, and customer service.

🖋 Takeaway

The central goal of any SaaS business is to maximize customer revenue by optimizing acquisition, retention, and expansion. This can be achieved only after a comprehensive understanding of the metrics associated with customer revenue.

The insights gained from studying these metrics allow a business to extract the maximum value from customers. This is done by optimizing both the cost and revenue metrics and ensuring sustainable growth that’s guided by quantifiable trends.

Businesses find different ways to represent the total customer revenue – MRR or ARR, or CLTV. The metrics associated with the costs incurred to generate these revenues are also crucial to the equation. Optimizing CAC and other overheads is key to ensuring customer net worth is maximized.

What Is Customer Revenue?

Customer revenue is the amount of total business revenue you can directly attribute to your customers that’s generated from your core business operations.

Customer revenue is significant to your revenue goals, revenue optimization, and the overall health of your company.

Why Is Tracking Customer Revenue Important?

SaaS companies measure and report on different types of customer revenue, mainly recurring and non-recurring. Knowing the factors responsible for both types of revenues is essential to accurately guide revenue expansion strategies.

The reason: Once you start tracking customer revenue metrics, you gain insight into the real growth of the business. Metrics like CLTV take a long-term view of business growth and hence, don’t let companies fall into the trap of expansion without any profit growth. 

Customer revenue is the guiding key performance indicator (KPI) of every strategy you apply, be it revenue operations or standalone tweaks in marketing or sales strategies. Plus, sudden dips in customer revenue can tell you it’s time to diagnose underlying issues. 

Metrics Associated With Customer Revenue

Any discussion around customer revenue is incomplete without the following metrics that are used to quantify both the customer revenue and the cost associated with its generation:

1. Customer Acquisition Cost (CAC)

CAC is the amount of money spent to acquire a new customer. It measures the sum total of your sales, marketing, and all other revenue generation departments required to onboard one additional customer.

It’s calculated by dividing the costs incurred on sales and marketing by the total number of customers acquired. 

CAC = Total amount spent on sales, marketing, and other acquisition efforts / Number of new customers acquired

2. Customer Lifetime Value (CLTV)

CLTV is the aggregate revenue you can expect to generate from a customer during the entire business relationship. From subscriptions to upgrades to cross-sells, there are a variety of ways a customer adds value to a business.

It is calculated as the average yearly amount an average customer spends on your business.

CLTV = [(Average purchase value)  × (Average number of purchases)] / The average duration of a customer’s business relationship (in years)

3. Customer Net Worth

A customer’s net worth is simply the true value generated from the customer after accounting for the costs incurred in acquiring the customer. It is calculated by subtracting the CAC from the CLTV.

Customer net worth = CLTV – CAC

Businesses sometimes also subtract the customer service costs from the CLTV to arrive at the customer’s net worth.

4. Monthly and Annual Recurring Revenue (MRR & ARR)

As the name suggests, MRR and ARR are the amounts of subscription or recurring revenues generated by your business per month and per year, respectively.

This is the customer revenue represented in a specific time period (month and year) and is crucial for subscription-based products or services.