What is Customer Lifetime Value (LTV)?
LTV measures the revenue your business makes from any given customer. It is an estimate of the average gross revenue that a customer will generate before they churn.
How to calculate Customer Lifetime Value (LTV):
Average Revenue Per Account (ARPU) / Customer Churn Rate = Customer Lifetime Value (LTV)
Pros:
Customer Lifetime Value helps you make important business decisions about sales, marketing, product development, and customer support. Some useful applications include tracking your LTV to Cost of Acquiring a Customer (CAC) ratio, measuring LTV for each marketing channel in order to identify those channels which acquire the most valuable users or minimizing churn by nurturing customers with the highest LTV in order to maximize MRR growth.
Cons:
LTV is a great indicator for planning future growth, but it can also fluctuate. For businesses with a small number of customers, the estimated value is likely to change from month-to-month due to the small sample size. Churn rate going up or the implementation of new features can also impact its value.
