What is the Customer Lifetime Value (CLTV) Metric?
The Customer Lifetime Value (CLTV) metric represents the average revenue generated per customer over their entire relationship with your business, measured at the moment of churn. It provides insight into the long-term value of each customer and helps evaluate the effectiveness of customer acquisition and retention strategies. It allows you to better understand the changing average value of the subscribers who are leaving your platform.
You can find it in the Cleeng Dashboard under Analytics.
How is it Calculated?
The formula for calculating CLTV is:
CLTV = (Lifetime Revenue from Churned Customers) / (Total Churned Customers)
- Lifetime Revenue from Churned Customers: The total revenue generated by all customers who have churned in the selected time frame, accumulated over the entire duration of their subscriptions.
- Total Churned Customers: The total number of customers who have churned during the period being measured.
How to Use the Customer Lifetime Value Metric in a Subscription Business
The CLTV metric is crucial for understanding the financial impact of customer relationships. You can use it to:
- Prioritize Customer Retention: Use CLTV to identify high-value customer segments and focus retention efforts on these groups.
- Optimize Pricing and Subscription Plans: Analyze CLTV across different subscription plans to determine which plans generate the most long-term value.
- Forecast Revenue: Use CLTV to predict future revenue based on anticipated customer acquisition and churn rates.
FAQs
Why do we calculate CLTV using churned customers?
Using churned customers provides a historical and definitive view of the revenue generated over a complete customer lifecycle. This helps in understanding the actual value delivered by past customer relationships.
What factors can influence CLTV?
Factors such as customer satisfaction, subscription duration, pricing, upselling/cross-selling opportunities, and churn rate can all impact CLTV.