A couple of posts ago, I started a series on SaaS metrics unique to enterprise-driven B2B Networks. In that first post, I covered the Buyer-Supplier revenue mix. This time, let’s consider modifying the concept of LTV/CAC to include an enterprise’s ecosystem.
There’s already too much written about LTV/CAC (see here, here, here), so I will be brief. The key point is that for enterprise-driven B2B networks, both CAC and LTV need to be modified to take into account the ecosystem an enterprise brings to the other side of the platform. For instance, CAC needs to be modified to be the CAC to acquire the enterprise plus the CAC to acquire that same enterprise’s relevant supplier base. (For order-to-cash companies, just reverse the words “buyer” and “supplier” each time they appear.) Similarly, the LTV needs to be the sum of the LTV of the enterprise buyer plus the sum of the LTVs of all of the enterprise’s suppliers. (And those two groups may have very different churn rates. This difference in churn will be covered in a later post.)
If you like fancy math symbols, and who doesn’t, it would look something like this:
Modified CAC for Enterprise Driven B2B Platforms = Traditional Buyer CAC + Σ Supplier CAC
Modified LTV for Enterprise Driven B2B Platforms = Traditional Buyer LTV + Σ Supplier LTV
(I know I should figure out how to show there are 1-n suppliers, but you get the idea.) (Also, again, just reverse the words buyer and supplier for O2C networks.)
An enterprise-driven B2B network needs to understand the total economics of each of its enterprise customers and their ecosystems. The network must also understand the CAC and LTV of each type of supplier because the network will discover important segmentations buried in that data. More on that idea in the last post in the series. Can you stand the suspense?