Marketing School - Digital Marketing and Online Marketing Tips

How to Determine Customer Lifetime Value | Ep. #382

Aug 17, 2017

Dive into the essentials of calculating customer lifetime value, especially for SaaS models. Discover a straightforward formula that considers churn rates and average payments. Learn about handy tools like Mixpanel and RJMetrics that simplify the process. The hosts share practical examples and insights, emphasizing the importance of selecting the right calculation method for your business. Get ready to enhance your marketing strategies with valuable tips and tools to boost customer retention!

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ADVICE

Simple LTV Calculation

Determine customer lifetime value (LTV) by dividing average revenue per user (ARPU) by the monthly churn rate.
This method has flaws, as churn impacts LTV non-linearly.

ADVICE

Alternative LTV Calculation Methods

Use tools like Mixpanel or RJ Metrics to calculate customer lifetime value (LTV) accurately.
Alternatively, find a reliable formula online, such as the one on the Kissmetrics website.

ADVICE

Using LTV Calculators

Use online LTV calculators or tools for accurate LTV calculation.
While manual calculation is possible, be aware of potential inaccuracies.

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In Episode #382, Eric and Neil discuss how to determine customer lifetime value. Tune in to learn the simplest formula you can use to calculate your customer lifetime value. Eric and Neil also drop several online tools that simplify the process and will do the math for you.

Time Stamped Show Notes:

00:27 – Today’s topic: How to Determine Customer Lifetime Value
00:38 – There are multiple ways to determine customer lifetime value
00:52 – Eric shares an example of a SaaS company’s customer lifetime value
- 00:55 – Neil’s Crazy Egg has a churn of 10%, which is the number of customers who stopped using the product
- 01:08 – Average price per user ID is $30, so you divide $30 by the churn to get the lifetime value
- 01:40 – Technically you take the average pay per month
02:00 – Mixpanel can calculate your customer lifetime value
02:10 – RJMetrics can do it for you, too
02:21 – There’s a formula on Kissmetrics that you can copy to calculate the customer lifetime value
02:31 – Eric has tried different formulas and the one on Shopify’s blog is one worth checking out
02:50 – You can do the formula yourself, but there will always be flaws
03:00 – Marketing School is giving away a free 1 year subscription of Crazy Egg which is a visual analytics tool
- 03:50 – Go to SingleGrain.com/giveaway for multiple entries
03:59 – That’s it for today’s episode!

3 Key Points:

There are several ways to calculate customer lifetime value, just find the one that suits you and your needs best.
Consider using a tool for a more accurate calculation of lifetime value.
You can create and execute the formula yourself, but don’t expect it to be error-free.