Customer lifetime value (LTV) is a metric that estimates how much money an individual customer will spend on your products or services. Increasing your average customer’s worth not only improves your financial metrics but also allows you to spend more on acquiring new customers.
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LTV is yet another important metric, even a marketing KPI, that you should keep track of. The best way for subscription-based companies to calculate the metric is as follows:
LTV = avg. monthly revenue per customer/avg. customer monthly churn rate
The fact that churn enables calculations of other crucial marketing metrics should make it a staple in your spreadsheets and dashboards.
5. Proxy for performance forecasts
Many companies and their analysts engage in forecasting future performances. Accordingly, the churn rate is an essential variable in the calculations.
We’re not talking about in-house uses only. Churn rate is also an important indicator when it comes to investing in subscription-based companies.
So what does it take to calculate churn rate?
How to calculate churn rate?
You might have already noticed that I talked about churn rates in relation to both customers and revenue. These are two types of churn rates, and here’s everything you need to know about calculating them.