Business Framework Interactive
Customer Lifetime Value (LTV)
Calculate the total revenue expected from a customer over their lifetime. Critical for acquisition budgets, retention investment, and unit economics.
๐ LTV Formulas
Simple LTV
LTV = ARPU / Churn Rate
Average revenue per user divided by monthly churn
DCF LTV
LTV = ฮฃ (ARPU ร P(survive) / (1+r)^t)
Discounted sum of expected future revenues
Customer Inputs
50 1000
2 15
1 20
Economics
25 500
0 20
LTV Calculations
Simple LTV
$320
Rev/Churn
DCF LTV
$253
Time-discounted
Expected Lifetime
20.0
months
๐ Unit Economics
Monthly Revenue
$16
CAC
$150
LTV/CAC Ratio
2.1x
Payback Period
9.4 mo
Break-even (Target: 3x+ LTV/CAC, <12mo payback)
LTV Distribution (Simulated)
P25
$63
Median
$187
Mean
$300
P75
$401
P95 (Whales)
$984
LTV is highly skewed. Top 5% (whales) may generate 50%+ of revenue.
๐ฅ LTV Segmentation
Churners
Low LTV, high churn risk
- โข Minimal investment
- โข Let them go gracefully
Casuals
Low LTV, low churn
- โข Low-touch engagement
- โข Upsell opportunities
Regulars
High LTV, stable
- โข Retention focus
- โข Loyalty rewards
Whales
Highest LTV
- โข VIP treatment
- โข Personal outreach
R Code Equivalent
# LTV calculations
calculate_ltv <- function(arpu, churn_rate) {
arpu / churn_rate
}
calculate_dcf_ltv <- function(arpu, churn_rate, discount_rate, months = 60) {
monthly_discount <- discount_rate / 12
survival_prob <- 1
pv <- 0
for (m in 1:months) {
survival_prob <- survival_prob * (1 - churn_rate)
discount_factor <- 1 / (1 + monthly_discount)^m
pv <- pv + arpu * survival_prob * discount_factor
}
return(pv)
}
# Example
arpu <- 16.00
churn <- 0.05
simple_ltv <- calculate_ltv(arpu, churn)
dcf_ltv <- calculate_dcf_ltv(arpu, churn, 0.1)
cat(sprintf("Simple LTV: $%.0f, DCF LTV: $%.0f\n", simple_ltv, dcf_ltv))
cat(sprintf("LTV/CAC: %.1fx\n", simple_ltv / 150))โ Key Takeaways
- โข LTV = Revenue / Churn Rate (simple)
- โข Target 3x+ LTV/CAC ratio
- โข DCF accounts for time value of money
- โข LTV is highly skewed (whales matter)
- โข Segment and treat customers differently
- โข Small churn improvements = huge LTV gains