The Customer Lifetime Value chart displays an estimated total lifetime subscription value of an average customer.
How is it calculated?
We calculate LTV as follows:
LTV = Average Revenue Per Customer (ARPA) / Customer Churn Rate
For example, with an ARPA of $100 and a monthly customer churn rate of 5%, your LTV would be $2,000.
Your LTV can be zero. This happens when your customer churn rate is also zero.
In some scenarios, LTV may not be so useful. For example, LTV tends to fluctuate more on a month-by-month basis for businesses with a lower number of paying customers. This is due to the smaller sample size.
What analysis can be gained?
LTV is useful when considering how much to spend on customer acquisition. For example, if your LTV is $100, and your cost to acquire the customer (CAC) is $50, you would have a $50 gain (excluding any other business costs).
LTV can also be useful when comparing groups of customers to see which group provides the greatest return on investment. For example, if you spend $100 to acquire 10 customers with an LTV of $12, this would not be as great a return of investment as spending $50 to acquire 10 customers with an LTV of $10.