Customer Lifetime Value (LTV) charts the estimated revenue you’ll receive from an average subscriber over their lifetime (from signup through cancellation).
This metric is also known as Lifetime Value (LTV).
Customer Lifetime Value charts the estimated revenue you’ll receive from an average subscriber over their lifetime, calculated as Average Revenue Per Account divided by Customer Churn Rate. LTV is useful when considering customer acquisition costs (CAC) and should be at least 3x higher than CAC.
What insights can I gain from Customer Lifetime Value?
Customer Lifetime Value is useful when considering how much to spend on customer acquisition. As a general rule of thumb, LTV should be at least 3x higher than your customer acquisition costs (CAC).
For example, if you spend $50 on average to acquire a new customer, your goal should be to generate at least $150 in revenue over the customer’s lifetime.
LTV is also useful when comparing cohorts (groups) of customers to see which cohort generates the highest ROI on customer acquisition spend.
Increasing average revenue per account (ARPA) and decreasing customer churn both result in a higher LTV. Thus, closely managing these two metrics is key to improving LTV.
- ChartMogul can only calculate LTV when your customer churn rate is not zero.
- LTV tends to fluctuate more on a month-by-month basis for businesses with a lower number of paying customers (due to the smaller sample size).
ChartMogul calculates Customer Lifetime Value as Average Revenue Per Account in each report interval divided by Customer Churn Rate in that interval.
For example, with an ARPA of $100 and a customer churn rate of 5%, LTV is $2,000.
The Chart Data table for Customer Lifetime Value works differently than other charts. It provides the following breakdown:
- Average Revenue Per Account — The total MRR in the report interval divided by the number of subscribers in the interval. See Average Revenue Per Account.
- Customer Churn Rate — The percentage of subscribers who canceled their last subscription in the report interval. See Customer Churn Rate.
- Customer Lifetime Value — Average Revenue Per Account divided by Customer Churn Rate.
- Change — The increase or decrease in Customer Lifetime Value from the previous report interval, shown as a percentage.
- Check out our Ultimate SaaS LTV Cheat Sheet
- See how much MRR you retain month by month after a customer begins a subscription with Net MRR Retention.
- Use Average Sale Price as an early indicator of whether LTV is likely to increase or decrease.
- Segment this chart by marketing channel, region, or a custom attribute such as training program completion to see which subscribers have the highest LTV.