Page Goal

Understand what is a Customer Lifetime Value and how to calculate it.

Last Updated

October 2019

Table of Content

Related Resources

• LessChurn - Churn rate formula
• Churn University - Churn calculation pitfalls
• CleverTap - Define & calculate customer churn
• ChartMogul - The Ultimate SaaS LTV CheatSheet - 2018
• KissMetrics - Calculating LTV - 2020

<aside> 💡 This guide is meant to provide basic knowledge on a complex topic in the most concise manner. Never take anything as the gospel truth, read from multiple sources before acting.

</aside>

1. LTV Overview

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A. Definition ❓

What is the customer lifetime value?

For any acquisition campaign to be profitable, the Customer Acquisition Cost (CAC) has to be lower than the Customer Lifetime Value (CLTV). The CLTV is a prediction of the net profit attributed to the entire future relationship with a customer and the CAC is the amount of money that needs to be spent to acquire an activate customer.

B. Calculation method 🧠

What are the factors to take into account and how do we weigh them?

1. Average cart value

2. Selling frequency

3. Average lifetime of a customer

→ Customer Lifetime Value = 1 * 2 * 3 = Average cart value * Selling frequency * Average lifetime