Lifetime Value
Definition
Lifetime Value is the revenue that a business receives from a customer over time before he churns.
Why use it
This KPI shows you how much you can spend on acquiring and holding a customer. You can also cluster your customers by acquisition channel to find out how much to spend on which ones.
Calculation
LTV is calculated by estimating the average lifetime of a customer by inverting the monthly Churn Rate and multiplying the Lifetime with the monthly Average Revenue Per User.
Note: A calculation by inverting the monthly churn rate can only give a rough estimate of customer lifetime as the churn rate varies over time. Especially, if your business is still young and did not go through a whole customer life cycle, customer lifetime can be hard to calculate.
Note: A calculation by inverting the monthly churn rate can only give a rough estimate of customer lifetime as the churn rate varies over time. Especially, if your business is still young and did not go through a whole customer life cycle, customer lifetime can be hard to calculate.
| ARPU |
| ÷ Churn Rate (in % of users) |
| LTV |
| Alias | Customer Lifetime Value |
| Abbreviation | LTV |
| Unit | Currency (Euro/Dollar/YEN/…) |
Example
A company has a monthly churn rate of 5% per month and an ARPU of 50 €.
| 50 € |
| ÷ 5% |
| 1.000 € |
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