Lifetime Value (LTV)

This critical metric aims to calculate the total value of a single customer relationship. Of course, the calculation can be different for every company, but here are some high-level examples of how you might calculate it based on your type of company.

Consumer Product Companies

Average Revenue per Transaction x Average Number of Orders per Customer

From this, we can see the repeatability and total value that we might expect from a single customer.

SaaS

Average Revenue Per Customer/User x (1 / Customer Churn Rate)

This calculation allows us to assume the revenue stream we could expect using retention metrics.

LTV can be a powerful tool in understanding your business and customer relationships, but keep in mind that it can also be manipulated and act as a distraction. Bill Gurley does an excellent job discussing the dangers of LTV obsession in his post, dangerous seductions.