LTV
LTV, or Lifetime Value, is a business metric that estimates the total revenue a company can expect to earn from a single customer over the entire duration of their relationship.
How it works
It's calculated by multiplying the average revenue per customer by the average customer lifespan. This metric is crucial for understanding customer profitability, determining how much to spend on acquiring new customers (CAC), and guiding long-term business strategy.
Examples
- 1.A streaming service calculates that a subscriber who stays for 3 years at $15/month has an LTV of $540.
- 2.A SaaS company uses a customer's monthly subscription fee and average subscription length to forecast their LTV and justify marketing expenses.
- 3.An e-commerce brand analyzes purchase history to predict the future value of a customer segment and tailor loyalty programs.