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.

ARPU
÷ Churn Rate (in % of users)
LTV
AliasCustomer Lifetime Value
AbbreviationLTV
UnitCurrency (Euro/Dollar/YEN/…)

 

Example

A company has a monthly churn rate of 5% per month and an ARPU of 50 €.

50 €
÷ 5%
1.000 €