LTV
LTV (Customer Lifetime Value) is the total revenue a customer is expected to generate for a company over the entire course of using its product or service.
How it works
It is estimated by analyzing a customer's purchase frequency, average order value, and expected retention period. For SaaS or subscription-based companies, LTV is a key metric for measuring long-term customer profitability and setting an upper limit on marketing spend.
Examples
- 1.A streaming company calculates the LTV of its subscribers to decide how much it is willing to spend on user acquisition.
- 2.An e-commerce platform analyzes the LTV of different user segments to optimize its customer loyalty program.
- 3.A SaaS product improves its features and customer service to extend the user lifecycle, thereby increasing overall LTV.