Lifetime Value (LTV) is a prediction of the net profit attributed to the entire future relationship with a customer. It is a key metric used in customer relationship management, marketing, subscription and billing management, and sales and it represents the total value a customer will bring to a business over the entire time they engage with the company.
LTV is calculated by estimating the average revenue a customer will generate, multiplied by the average length of time they will continue to do business with the company. This metric helps companies understand the potential value of acquiring and retaining customers and make informed decisions about customer acquisition and retention strategies.
This metric is used in a variety of industries including subscription-based businesses, Retail outfits, Finance service companies, Healthcare providers and Gaming. In retail outfits, LTV is used to understand the value of customer relationships, including both online and brick-and-mortar stores. In finance companies, LTV evaluates the long-term value of the customer so as to make decisions on customer acquisition and retention. Healthcare providers use LTV to understand the value of their patient relationships and to inform decisions about patient acquisition and retention. Finally, gaming companies use LTV to evaluate the long-term value of their players and to inform decisions about player acquisition and retention.
Subscription management platforms use LTV as a key metric to measure the long-term value of a customer. It represents the total revenue that a customer is expected to generate for the company over the course of their subscription. Here, LTV is calculated by multiplying the average monthly revenue per customer by the average customer lifespan, or the number of months the customer is expected to remain a subscriber.
This metric is important in a subscription-based business because it helps to determine the cost of acquiring and retaining customers, and provides insight into the potential revenue that can be generated from each customer over time. By tracking LTV, companies can make informed decisions about pricing, customer acquisition, and retention strategies, and optimize their business for maximum profitability.