How to Calculate LTV? Four Formulas

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There are several ways to calculate the indicator with varying degrees of accuracy. The choice of formula depends on the initial data you have.

Simple LTV formulas
By profit and number of customers. For the simplest calculations, you only need two indicators. Take the total income for a certain period and divide it by the number of customers for the same period of time.

LTV = Profit for the period / Number of clients for the same period
For example, a company earned 100 thousand rubles of net profit from 25 clients in a month. This means LTV = 100,000 / 25 = 4,000 rubles.

The formula is suitable for roughly estimating LTV, but it is not accurate enough for building a business model. The main problem with such calculations is that they do not take into account the period during which each client cooperates with the company. Some buyers have been using your product for the last 5 years, while others learned about it a week ago. But the LTV for both categories will be the same and averaged.

In addition, the accuracy of calculations is tied to the period, so there is a risk of choosing the wrong time interval. For example, if most regular customers made an order in June, and you calculated LTV for July, the resulting LTV will be lower than the actual one. Therefore, it is worth calculating the indicator for several periods and comparing the numbers .

By average revenue and costs. This formula requires three benefits of using our amazon database metrics: ARPU — average revenue per customer, CAC — customer acquisition cost, and CRC — customer retention cost. Subtract the other two metrics from the average check, and you get LTV.

LTV = ARPU - (CAC + CRC)
Let's say the company earned 7,000 rubles from a client, spent 1,500 rubles to attract them, and 1,000 rubles to retain them. LTV = 7,000 - (1,500 + 1,000) = 4,500 rubles.

This formula is more accurate than the previous one, since the result does not depend on a certain period. But it also has a drawback: it is often difficult to determine the exact cost of attracting and retaining a client. Usually, this can only be done within the framework of one advertising campaign, so there may be errors in the calculations.

The formula also does not take into account how long a particular customer has been using the company's services. The result is an average between old and new customers.