Customer Lifetime Value or CLV is one of the most important concepts to understand, if you are to optimize your subscription business. In summary, CLV estimates the future revenue of a subscriber - accounting for the average revenue during its future lifetime. CLV is a forward looking metric, meaning it will always be an estimate.
How is it calculated? There are many ways to calculate your CLV - both simple and complex. One of the simpler ways is to find the lifetime by taking the inverse of the monthly churn (in percentage). Then, multiplying this lifetime with the ARPU (Average Revenue Per User) per month - you will end up with an estimate of the CLV.
How is it used? CLV can be used to understand the value of different customer segments, for example related to your marketing efforts. You can calculate the CLV for different sales channels, and then compare this with your Customer Acquisition Cost (CAC) to understand you margins.
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