Customer Lifetime Value
Customer Lifetime Value (LTV or CLTV) is the total revenue you expect to earn from a customer over their entire relationship with your company. It's the other half of the unit economics equation.
ARPU: $200/month. Gross Margin: 80%. Average customer lifetime: 36 months. LTV = $200 × 0.80 × 36 = $5,760.
LTV tells you how much a customer is actually worth, which determines how much you can afford to spend acquiring them. If LTV is too low relative to CAC, your business model doesn't work.
LTV:CAC target
Minimum viable
World-class
Yes. LTV should reflect profit, not just revenue. Using gross margin (revenue minus cost of goods sold) gives you a more accurate picture of customer value.
Customer Lifetime = 1 / Monthly Churn Rate. If your monthly churn is 2.5%, average lifetime = 1 / 0.025 = 40 months.
Use cohort analysis with the data you have, then project forward. You can also use industry benchmarks as guardrails while you collect more data.
Customer Acquisition Cost
Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, i...
Lifetime Value to Customer Acquisition Cost Ratio
The LTV:CAC ratio compares the lifetime value of a customer to the cost of acqui...
Average Revenue Per User
Average Revenue Per User (ARPU) is the mean revenue generated per customer or us...
Customer Churn Rate
Churn rate is the percentage of customers (or revenue) that cancel or don't rene...
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