Our first in the 60-second sesh series. Jesse from Subscription School explains what Lifetime Value is, a simple way of calculating it, and how to use the metric to your advantage for your subscription business.
Hey everyone, this is Jesse with Subscription School, and welcome to our first 60-second sesh. Today, we’re talking about LIFETIME VALUE (LTV).
So what is Lifetime Value? Lifetime value is the average gross revenue a customer generates over the life of their subscription. This is the average dollar amount a customer spends on your product over time. A simple way to calculate it looks a little something like this:
Now we can’t stress this enough: this metric is really important for your business, and it starts with customer acquisition. When you understand your LTV, you can calculate how many dollars you can spend to acquire a customer. If your acquisition cost is higher than your LTV, you’re not making profit on that account.
LTV is also useful when it comes to financial planning. An accurate LTV assumption can better inform hiring decisions, special sales, and product launches.
Now, you might be asking yourself, How can I calculate my LTV more precisely? A few things to consider are including one-time sales, separating your customers by cohorts (or segments based on acquisition source or month), or including a slight discount, like .8, for a more conservative assumption.
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