Introduction to LTV

Marketing Analytics in Tableau

Mariam Ibrahim

Managing Data Analyst, IBM

LTV

LTV stands for LifeTime Value

$LTV = \text{price (annual, monthly)} \times \text{average lifetime}$

Average lifetime is the number of periods the average customer purchases for (same unit as price)

$LTV = \frac{\text{average revenue per customer}} {\text{churn rate}}$

$LTV = \frac{\text{total revenue/total number of customers}} {\text{churn rate}}$

Churn: rate at which customers stop purchasing

Healthy software business: churn rate ~3 - 8%
Varies significantly by industry
Marketing analysts will often examine typical customer purchase patterns to identify a churn window

3 month vs. 6 month journey length

Membership-based businesses: any cancellation typically considered to churn

Let's return to our formulas briefly:

Each formula contains an average

$LTV = \text{price (annual, monthly)} \times \text{average lifetime}$

$LTV = \frac{\text{average revenue per customer}} {\text{churn rate}}$

$LTV = \frac{\text{total revenue/total number of customers}} {\text{churn rate}}$

Cohort: a group of customers who behave similarly

E.g. Do cohorts with higher average spend join via a specific marketing channel?

Average lifetime of a customer for a boutique fitness studio is 36 months
Two cohorts: one signing up for 1 month, and another for 71 months

36 month average could be two equal cohorts of 1 month and 71 months

Marketing analysts look at cohort analyses in addition to calculating LTV

We'll review CAC in next section

Marketing Analytics in Tableau