---
title: CLV, the Technology Services Way
description: Discover how maximizing Customer Lifetime Value (CLV) can drive growth in technology services. Learn key strategies, data-driven insights, and personalization techniques to retain customers and boost profitability.
image: https://alten.capital/hubfs/CLV-1.jpg
---

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[Alten Capital](https://alten.capital/blog/author/alten)  January 15, 2023

# CLV, the Technology Services Way

Customer Lifetime Value (CLV) metrics are commonly used in software, SaaS, and subscription-based businesses. Given the recurring nature of technology services companies, we can adapt these concepts from SaaS and apply them to tech services.

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CLV data attempts to guide decision-making in software businesses. As companies understand their CLV, they can make marketing and sales decisions that align with the value of the customers they support. For example, if an average customer is worth $800 of revenue during their lifetime with the business, the software company will look to acquire an average customer for less than this amount, of course. The marketing or growth group now has parameters on how much to spend to acquire customers. Once the company understands this data, it can start referring to it as Customer Acquisition Cost (CAC). Assuming CAC is $200, the CLV / CAC ratio, in this case, is 4x.

Due to the software's high gross margin, it is common for CLV metrics to be calculated at the revenue level. This is not the case for technology services. We will describe the adaptation we use below.

In technology services, the cost of goods sold or cost of sales is typically labor (the cost to deliver the projects that generated the revenue). It is unusual to have 70%- 80% gross margins. Gross margins are typically within 40%- 60% in services, depending on several factors like geographic team location, niche expertise, type of engagement, etc.

If we are assessing how much value needs to flow from the upper levels of the income statement to the operating expense levels to pay for sales and marketing (to generate that revenue!), we need to adapt the CLV formula to consider the cost of sales. This formula guides us to use gross profit figures rather than straight revenue numbers.

Using the same metrics as in the prior example, if that company had 50% gross margins, then the average CLV would be $400. With $200 in CAC, the CLV / CAC ratio would be 2x.

Tracking these metrics is relevant in technology services. We can also extend analyses to include cost per lead and cost per opportunity, building up to the CAC while calculating conversion rates for each funnel level.

As you scale your technology services business, try implementing sales and marketing metrics to help you make growth investment decisions.

Please reach out to us if you want to learn more. At Alten Capital we invest and help grow global technology services companies.

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