If, for example, we know that the government spending multiplier is 5, and the government increases spending by $10 billion, we'd project that GDP would grow by $50 billion.
In a similar fashion, renewals have a multiplier impact on SaaS companies' revenues.
Lifetime Customer Revenue
To be more precise, what we're actually referring to here is "lifetime customer revenue."
Lifetime customer revenue = recurring revenue per period * term of customer lifetime
As an example, I'll calculate the average lifetime customer revenue for salesforce.com, estimating a 3-year customer life multiplier:
$17,780 average annual revenue per customer * 3 year customer lifetime = $53,340 lifetime customer revenue.
The relationship between the renewal multiplier, lifetime customer revenue and customer acquisition cost
This calculation becomes truly useful when comparing the lifetime customer revenue to the cost of acquiring a customer, i.e. sales & marketing expenses.
According to this illustration, when salesforce.com can extend the average customer lifetime to 5 years, the company generates $2.40 in lifetime customer revenue for every $1 spent on customer acquisition. At a 3-year lifetime, $1.44 of lifetime revenue is generated. And at a 1-year customer lifetime, only 48 cents of revenue is generated for every $1 spent on sales & marketing.
Don't lose customers you've already paid for
As you can surmise, spending more than $1 to acquire a customer that yields less than $1 in lifetime revenue is not a sustainable business model.
Extending the life of the customer's subscription is critical to success. It's bad business to lose customers you've already paid for.