Why the SaaS Model Demands a Focus on Retention and LTV
Luiz D’Elboux analyzes the transition to software subscriptions and explains how retention determines business health.
Speaking on Marketing - The Podcast, Luiz D’Elboux explains how the SaaS model shifts profit from the initial sale to long-term retention. He breaks down 7-day and 14-day retention metrics and lifetime value analysis.
Luiz D’Elboux, a board member and advisor for SaaS companies, spoke with Bruno Gimenes on Marketing - The Podcast about the unique economic and analytical aspects of the software subscription model. D’Elboux pointed out that the tech industry often focuses excessively on signups or the initial sale, overlooking the fact that the recurring revenue model fundamentally depends on customer behavior months after the first conversion.
In the video above, the discussion details the historical evolution of the model and how different media channels perform across the user lifecycle.
The structural shift brought by the SaaS model
When contrasting the traditional licensing model with modern subscriptions, D’Elboux noted that software was historically sold on physical media with high upfront costs, creating a natural barrier against switching providers. The rise of Software as a Service (SaaS), pioneered by Salesforce, transformed this dynamic by turning products into services with recurring billing.
"So, SaaS is essentially selling software as a service rather than a standalone product, right? Previously, buying software required a high upfront investment, so customers wouldn't easily switch—they had already paid the full price. What makes SaaS so advantageous for the customer is that it dilutes the cost of that software over time," D’Elboux explains.
Post-sales retention metrics
Diluting the upfront purchase price directly alters the goals of acquisition campaigns. According to D’Elboux, optimizing solely for signups or trial activations can lead to wasted ad spend if users abandon the product immediately afterward.
He pointed to his experience at Ankama between 2012 and 2013, when media success metrics were restructured to track post-trial engagement: "We moved away from tracking registered users and paid users to measuring 7-day and 14-day retention. We tracked those metrics by channel, and sometimes by keyword, to see which channels delivered a higher percentage of active players after 7 and 14 days."
LTV and cohort analysis
At GoDaddy, marketing strategy was also aligned with long-term profitability through customer lifetime value (LTV). D’Elboux explained that the company evaluated historical data to estimate the financial value each customer would generate, applying those insights to incoming customer cohorts.
"We looked at customer lifetime value based on performance months down the line. We conducted comprehensive historical analyses to determine what each customer was worth by acquisition channel, and then applied those benchmarks to new customer cohorts," D’Elboux states. He emphasizes that the financial sustainability of SaaS relies entirely on retention: "That is what keeps a SaaS or subscription business healthy, because the initial purchase value is low. The company makes its money on recurring revenue, not on that first subscription."