LTV — Lifetime Value

A simple way to estimate LTV is to multiply the average order value by the number of purchases per year and by the average number of years a customer stays with the company. For subscriptions, take the monthly payment times the average number of months.

LTV explains why partners are ready to pay notable sums for a new customer: they earn the payout back not on the first purchase but on all the following ones.

Example

For example, a subscription costs €10 a month and a customer stays 9 months on average. LTV = €90. Paying a partner €15 for such a customer pays off.

How to calculate it / how it works

Formula for purchases: LTV = average order value × purchases per year × years of customer life. For a subscription: monthly payment × number of months. It is better to calculate it on profit, not revenue.

For example, a subscription costs €10 a month and a customer stays 9 months: LTV = 10 × 9 = €90. Say the margin is 50%, so profit over the customer's life is €45. Paying a partner €15 for such a customer pays off: €30 is left.

Where it shows up in ThanklyClub and common mistakes

For a store, LTV points to something different: a partner gift does not replace repeat purchases by your own customers but brings income on top. So the block should stay small and not distract from the next purchase in the store itself.

• Calculating LTV on revenue instead of profit.
• Taking an average across all customers, although different channels bring different people.
• Presenting a forecast as fact: 9 months on average is an estimate until all 9 months have passed.
• Forgetting churn: subscriptions get canceled, and without it LTV is overstated.

FAQ