Churn is a possible indicator of customer dissatisfaction, cheaper and/or better offers from the competition, more successful sales and/or marketing by the competition, or reasons having to do with the customer life cycle. The churn rate can be minimized by creating barriers which discourage customers to change suppliers (contractual binding periods, use of proprietary technology, unique business models, etc.), or through retention activities such as loyalty programs.
Customer lifetime value (CLV), or lifetime value (LTV) is a prediction of the net profit attributed to the entire future relationship with a customer. It is often used as an indicator of how much can be spent to acquire each customer.
This report provides two indicators of how your customer lifetime value is changing over time. First in the row labeled LTV we provide customer lifetime value assuming a constant value for margin (if you enter it at the left) and retention rate (as estimated that month). This calculation is adapted form Harvard’s “Customer Profitability and Lifetime Value”.
Below this we provide a monthly cohort table displaying customer value-to-date. That is the approximate value each customer, who signed up in a certain month, has contributed at a given age. To calculate this we use the following formula:
Where P is the product price, S is the total number of subscribers that month, R is the total refunds made that month, and M is the product margin (if entered).
Embracing Lifetime Value by Seth Godin
KISS Metrics’ on How to Calculate Lifetime Value
Kellogg School of Management on, “Predicting Customer Lifetime Value — When is it sensible to give perks to customers?”