Docs Revenue metrics Customer lifetime value (LTV)

Customer Lifetime Value (LTV)

Customer Lifetime Value (LTV) gives you a clear picture of how much revenue you can expect to make from your average customer over the course of their lifetime. This metric helps you understand the long-term value of each additional conversion.

What is Customer Lifetime Value (LTV)?

LTV represents the total revenue you can expect from a customer over their entire time as a paying user of your app. It’s calculated by dividing your app’s Average Revenue Per User (ARPU) by your app’s subscription churn rate. Importantly, it does not include revenue from frozen subscriptions. Here’s the formula:

LTV = ARPU / Subscription churn rate

Why is LTV important?

LTV is important because it helps you understand the long-term value of your customers, which is crucial for making informed business decisions. Here’s why this metric matters:

  • Revenue insight: LTV provides a clear picture of how much revenue a customer will generate over their lifetime.
  • Customer acquisition: Knowing your LTV helps you determine how much you can afford to spend on acquiring new customers.
  • Retention strategies: LTV highlights the importance of retaining customers, as longer customer lifespans increase their value.
  • Value of conversions: LTV helps you understand the financial value of each additional customer conversion, guiding your marketing and sales efforts.
  • Performance tracking: Monitoring LTV helps you track the effectiveness of your marketing and customer retention efforts.

Actions you can take with LTV insights

  • Optimize marketing spend: Use LTV to set budgets for customer acquisition, ensuring you’re spending effectively to acquire valuable customers.
  • Enhance customer retention: Develop strategies to increase customer retention, such as loyalty programs or personalized communication, to extend customer lifespans.
  • Improve customer experience: Use feedback and data to continuously improve the customer experience, encouraging longer and more profitable relationships.
  • Segment customers: Identify high-value customer segments and tailor your marketing and service efforts to cater to their needs and increase their LTV.

By understanding and regularly monitoring your Customer Lifetime Value, you can gain valuable insights into the long-term financial impact of your customer relationships. This metric helps you make informed decisions that drive growth and ensure long-term success for your business.