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LTV: Lifetime Value


A prediction of the net profit attributed to the entire future relationship with a customer. To calculate LTV, follow these steps for a given time period:

  • Take the revenue the customer paid you in that time period.
  • Subtract from that number the gross margin.
  • Divide by the estimated churn rate (aka cancellation rate) for that customer.

For example, if a customer pays you $100,000 per year where your gross margin on the revenue is 70%, and that customer type is predicted to cancel at 16% per year, then the customer’s LTV is $437,500.

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