How to Calculate Customer Lifetime Value | The #1 Most Important Metric for Startups

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We learn how to calculate customer lifetime value in Excel and discuss why this is THE MOST important metric for operating a successful subscription-based business.
✅ Download the Excel template: bit.ly/clv_mlchmp
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In this video, we walk through a customer lifetime value (aka LTV or CLV) example of a subscription-based startup, build a model to forecast the lifetime value of their customers, and finally use this information to try to understand how much the company can spend in advertising.
The reason why so many famous technology startups are able to lose money in early years, and then make money later on, is because they understand how to calculate customer lifetime value.
Subscription companies (like SaaS or ecommerce businesses) often need to spend a lot of money to get new customers to sign up for their products - so they have a very high marketing costs to win over new clients (customer acquisition costs or "CAC").
But, the reason they can pay so much in marketing is because each customer has a "lifetime", or an average number of months that they continue paying for their subscription, before they eventually cancel. This customer lifetime has a value that you can estimate with a customer lifetime value model.
During this customer lifetime, the company makes back the money it spent in marketing to acquire the customer (the CAC they spent to get the new client), and after that payback period, the company begins making profit on the customer.
For this reason, knowing how to calculate the customer lifetime value is the key to operating a successful subscription-based company and raising venture capital funding.
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#customerlifetimevalue #clv #saas #startups

Опубликовано:

24 май 2020

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Комментарии : 185

@davidanderson586 10 месяцев назад

THANK YOU!! Such a good breakdown! I'm in a marketing undergraduate program right now, and the way it was written out in the textbook looked like a hieroglyphics.

@josbjosb1078 3 года назад

ERIC. Thank you man, you are incrideble.

@akshatbhatia5322 3 года назад

You just saved my life!!! Thank you for making this video

@eric_andrews 3 года назад

Cheers Akshat !! Happy to help 😎

@bellbellbell00 4 года назад

These are such helpful videos Eric - thank you!

@eric_andrews 3 года назад

My pleasure thanks for checking them out david

@olaayupuspasari1333 2 года назад

Blessed you! Thanks for making this video! Really helpful

@keyspanmusic 4 года назад

Nice explanation. Brings to mind the importance of identifying/establishing a customer demand (top of funnel) first before launching a product or service, since that can be so impactful at controlling the CAC (since there is a population that already wants to buy), and also can help drive the CLV (e.g. as customers who adopted more organically may tend to be more valuable over the long term). Thanks for sharing!

@eric_andrews 4 года назад

Hi Keyspan - you are thinking exactly along the right terms - maybe this would be good content for another video! But yes you better have a good marketing channel lined up if you want to sell something, and if your biz doesn't run on a multi-purchase subscription model, then you can't necessarily afford to do much acquisition on paid channels (expensive) and you probably need a big organic following first, exactly as you said. Always need to look at demand and lifetime value as a first step! Thanks for the comment and thoughts!

@daniellenapoli650 3 года назад

Thank you for this. I did have a few questions but will let my thoughts simmer on this before asking. Sometimes the answer is right there. Really helpful!

@eric_andrews 11 месяцев назад

No need to wait!

@peterhabibjn8308 2 года назад

Great video. It helped me calculate a key business metric that I did not know how to get.

@BenChipman-zw5mq 11 дней назад

Thanks Eric, walking through it month by month helped me see my mistakes!

@eric_andrews 4 дня назад

Glad to hear it!

@gurpreetsokhi3376 3 года назад

This video was super helpful and easy to understand - thank you!

@eric_andrews 3 года назад

My pleasure Gurpreet - thanks for checking it out!!

@bocobox 4 года назад

Awesome 👍. Please don't get tired of doing more videos like this.

@eric_andrews 4 года назад

I won't! I'm glad you liked it.

@YehNahh Год назад

Absolute gold! Thank you Eric!

@eric_andrews Год назад

You bet!

@user-bm8vg5zn4t Год назад

Very nice presentation!

@sunreap8964 3 года назад

was really helpful. Appreciating your efforts Thank you so much!

@eric_andrews Год назад

You are very welcome

@goodplant2486 Год назад

Thanks for simplifying the computation. Some teachers use a difficult formula like an art form.

@eric_andrews Год назад

Haha, thanks!

@babekallahverdizade717 Год назад

Hi Eric, thank you for the fantastic explanation. Thanks to you I'm almost ready to launch my startup business! :)

@eric_andrews Год назад

Awesome, let's do this 🚀

@raysonchia1400 3 года назад

Awesome content!

@kilgoresapothecary4501 3 года назад

Excellent video, thank you!

@eric_andrews 3 года назад

It's my pleasure, happy to help !!!

@MosleepLesserproblems 2 месяца назад

Great video, Eric! Thanks for the crisp walk through.

@eric_andrews 2 месяца назад

My pleasure!

@AIDACM971 4 года назад

Excellent Eric!

@eric_andrews 4 года назад

A thousand "thank yous" for watching, Peter!

@skid-ed2qk 2 месяца назад

Thanks for sharing. hand down for this!!. such a informative and practical CLV video.

@eric_andrews 2 месяца назад

Really glad to hear it, appreciate the comment 👍

@pavanelisetty4071 2 года назад

Thanks a lot dude

@anuraagkhandelwal6327 2 года назад

Good video. I'm curious how do we arrive at the formula of Lifetime months = inverse of churn. What is the logical/mathematical explanation of the formula?

@NotAnYoutubeChannel 2 года назад

That does make sense to me either... how 1/ by a percentage will give you an amount of months wouldn't that be 22% of 12 months?!

@NotAnYoutubeChannel 2 года назад

I think i get it!! That would mean that whole 1 group of clients.. churning by 22% rate per peiord.. 1/22% will give you how many period it would take for that to be completly churned Although would it be more logical to devide by a avgera of the churn rate in the larger period? monthly churn rate will fluctuate a lot

@batoolhijjawi3114 2 года назад

I loved your explanation, Thanks for your efforts. You got a new subscriber! :)

@eric_andrews 2 года назад

Thanks! Really glad to hear it!

@catalyst_cadatalyst6369 2 года назад

Very helpful, thanks

@eric_andrews 2 года назад

Glad it was helpful!

@youssrael2527 4 года назад

Thank you so much that was helpful. I like the way you explain thing & I wish that you do videos about financial statements

@eric_andrews 4 года назад

Hi - I'm so happy to hear that! I actually do have some videos about financial statements, here are some links: ► How to Build a 3 Statement Financial Model: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-xlXDZyZ9azk.html ► Advanced Ecommerce Financial Model: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-bsmyakxOPLY.html

@youssrael2527 4 года назад

@@eric_andrewsthank u🌹

@sarahconley4822 3 года назад

Hi Eric, After reading several models, your explanation is the one which actually made sense and helped me understand. Can i ask, is your equation based on a specific model or framework? I would like to use your workflow idea and it would be great if you could provide me with the original framework reference. Thanks for your time. Sarah

@eric_andrews 3 года назад

Hi Sarah, that's great! There is no original reference, this is just the way we look at LTV with subscription products in any business. If you had a non-subscription product (any other type of business) you would also be looking at the stream of customer purchases over their lifetime, although purchase frequency would maybe vary more. For those we use customer cohort analyses. For example, think of someone going to a grocery store over many years. They would have a high customer lifetime value and make many purchases and you could easily calculate it. Same idea, but you wouldn't be looking at the "churn" as much.

@madhvisingh9895 3 года назад

Hi Eric, this was really helpful. I have a question on number of clients, how do we add the new customers while catching LTV, our business model is yearly or monthly sub with min 12mnth commitment, how to add this criteria for calculating LTV? Thank you

@karan-aulakh96 3 года назад

Hi Eric, fantastic and crisp explanation. I had a question though, shouldn't we also include MoM newly acquired customers too?

@eric_andrews 3 года назад

Hey Karan. Really great question and thanks for the comment. You are thinking more deeply about a complete revenue model, but in this specific video, we are just trying to figure out what is the lifetime value of one single customer in one single moment. So we just look at a fixed group of people who buy in an isolated time to understand how much they buy over their lifetime. Regarding your question, I'm going to release another video about customer cohort models soon which you will probably find very interesting and will relate more to your question. That video will model how customers buy and then continue to buy (this video) as well as how new customers come into the business. Hope that helps!

@AlejandroVargas-mh5bt 2 года назад

I would say user based customers, not only subscription business model. You can also use it for advertisement base or transaction based user companies.

@samefishingaustralia 2 месяца назад

very well explained.

@eric_andrews 2 месяца назад

Cheers 👍

@sonerguney3225 Год назад

Very good

@bayarsaikhanbaasanbat9009 2 года назад

Hi, Eric. Great content. Would it make sense if I have the (transactions, clients, and avg order value) on a quarterly basis but only the (avg lifetime) on an annual basis in the formula? Would this give a meaningful result? I mean the variables, transactions, avg order value, clients are quarterly values but the avg lifetime is an annual value. Will it work in the formula? Quarterly data makes more sense to our business.

@eric_andrews 11 месяцев назад

Yes you can do it, you would just need to make sure you are measuring the churn rate on a quarterly basis and when you use the 1/churn formula that will tell you the customer lifetime in QUARTERS :)

@jameshembrow5433 2 года назад

Hi Eric, Great video. For an Ecommerce business selling physical products, most cases the customer is not paying a monthly subscription. So how do we calculate the churn rate? We can look at each customer one by one and see when they last made a purchase, some customers might buy one of our products every month, some might only buy one or two per year. I guess we could say if they haven't purchased in 18 months there are no longer a customer. But how to get that data from our store. Appreciate calculating churn rate is much simpler with a subscription model.

@eric_andrews 2 года назад

Hey James - yes 100% the churn rate doesn't make sense for businesses without subscription. There are a lot of way to forecast this. First off I have a "finance for startups" course launching in 2 weeks which is basically an extremely deep dive into every startup financial model you could image, with a whole module on eCommerce, waitlist is here: www.startupfinancecourse.com/early-access But let me try to help here in the comments. So sometimes I just will use a =sum formula totaling up all orders from the prior 4 or 6 months and then use a multiplier asssumption to calculate returners for the current money. So like =sum(prior 6 months orders) * X% , and you can play around with X until it mirrors your historical numbers. Other times I just use a CAC for ALL orders, not just new, to try to forecast a combined new & return #. Check out my new eCommerce vid for an example of that cheers: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-KfUam8C40uY.html&ab_channel=EricAndrews The final way is using a cohort retention table which I show in my marketplace financial model, and we get into all of this stuff in the course. Good luck

@Team-ie4kr 3 года назад

Hi Eric. Thanks for the explanation. How do you calculate the churn rate if it's not a monthly subscription but a conversion on an app?

@eric_andrews 3 года назад

Sure, so is the person spending any money?

@abShar0705 3 года назад

Hey Eric, Good stuff, subscribed. Quick question, if I took this data (the one youre playing around with) and tried working backwards to kinda arrive at a subscription price, how'd you do that? I've generally seen companies, which im guilty of doing myself, starting off with a few basic SaaS license packages, analyze the cohort, a/b test afew more pricing strategies and finally come to a balanced price package. Instead if I just took the above explained data and worked forwards/backwards to arrive at an initial subscription price, how'd you work that out? Assuming this dataset comes from an ecommerce company, but now the ecomm company wants to start off a subscription offering basis this data. How to arrive at an initial price? Thanks again

@eric_andrews 11 месяцев назад

I would work backwards from your customer acquisition cost. If you have a $100 CAC (for example), you can work backward using some basic gross profit % & churn assumptions to figure out at what price point you can afford to acquire customers (where your LTV > CAC). I would start there and try to get your LTV: CAC ratio to at least 3, ideally 5+

@trangiabao3520 23 дня назад

This video is so helpful, really appreciate your content Eric. But i wonder that how you can figure out spending 50$ more to gain new customers.

@user-ty6rq3zl2p 7 месяцев назад

Hi Eric, Very helpful. How to calculate LTV for goods instead subscription, all customer will buy any products like Shirts, Pants and Shoes?

@eric_andrews 7 месяцев назад

I explained it here ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OwCATJh4lNg.htmlsi=lK5upbZ8DII8nTBR

@mohamednazeer4553 Год назад

Will this be applicable for print on demand product?

@shooting70s 3 года назад

Nice video .. It would be nice if you model showed new organic customers in addition to the churn.

@eric_andrews 3 года назад

Agreed. Feel free to look at either my marketplace financial model or social network financial model where I walk through how to model that: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Q9lnHGFrfd4.html ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-q5jwJqHECBs.html Cheers!

@skyspeight 3 года назад

Thanks for this video it was super helpful but quick question, I was sorta confused on the average orders per customer and average order value since they seem to be the same. I know how to calculate AOV but how did you calculate your average orders per client/customer?

@eric_andrews 3 года назад

Hey - I was just trying to highlight that a typical "order" is usually not 1 unit of a product, so it is more important to think about AOV (which is how much someone orders) rather than just think about an order being 1.0 products. Yes they are the same, as AOV really is what a real person is ordering! I'll try to explain through a different example, say you are selling a $100 product, you might think that you can spend $25 in marketing for each new order, but if you see that each customer is actually buying 1.5 units in the typical order, then your marketing calculation might be different. Does that help? If you're looking to dive into customer lifetime value, feel free to go down the rabbit hole with me here: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-eHi875QuVcA.html

@skyspeight 3 года назад

@@eric_andrews Oh okay, I gotcha. No, that definitely helps. I appreciate the quick response and the video.

@eric_andrews 3 года назад

@@skyspeight Happy to help. Cheers!

@rameshamoily5524 2 года назад

Hi Eric, thanks for this. and i have a question - If there is no churn in a particular month, then how do we calculate LTV? thanks in advance

@eric_andrews 2 года назад

Watch my cohort retention video for customers that have changing retention over time

@thewilliamjrful Месяц назад

Great video man. But this isn't suitable for a brand new ecom start up? Since how can we predict all the churn rates etc. We need to have some sales first prior to applying this if im correct?

@eric_andrews Месяц назад

Yes to some extent, but it depends, always good to make starting assumptionsto figure out your business model. Are you subscription-based company or no?

@ranjithpm5103 11 месяцев назад

Great explanation Eric, and thanks for sharing. One quick question, at 7:30 you had mentioned on an estimated CAC of 50 USD. Can you please elaborate on that estimation, or a mathematical formula for making a standard approximation for preparing a budget for marketing spends?

@eric_andrews 11 месяцев назад

Yes the basic CAC formula you can view here: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-8WChmQuTeN0.html I used the $50 just as a guess for my example that seemed reasonable. Honestly though really depends on the product and marketing execution. CAC can be anywhere from $10 to $50,000 depending on what you're selling. And in this second vídeo I get more into budget setting for marketing and what is a "good" CAC (around minute 8): ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Je_sl8YTjoU.html

@ranjithpm5103 11 месяцев назад

@@eric_andrews : Thank You! Shall check those

@eric_andrews 11 месяцев назад

@@ranjithpm5103 :)

@poonbeat 2 года назад

Do you know of a chart that shows an estimate of each type of businesses CLV? It would be very useful to be able to quickly refer to when selling advertising.

@eric_andrews 11 месяцев назад

What is much more instructive is the LTV: CAC ratios. Yes there are many benchmarks by sector, most companies target 3-5+, I actually have a whole series on it you can check it out here (here is the first part on SaaS, there is also one on marketplace and eComm): ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-o9ufogwDrwc.html

@arjansahni 2 года назад

Thanks for this video Eric. When reducing the churn rate in your template, the LTV and CLTV seem to be different numbers. Is that normal?

@eric_andrews 2 года назад

I'm seeing that they are 100% identical, maybe you messed around with some other formulas?

@arjansahni 2 года назад

@@eric_andrews Thanks for your response. I just re-downloaded the excel to double check and when modifying the churn by even 1%, the CLTV seems to be changing. Do you think it's normal for the CLTV to change when modifying the churn rate?

@eric_andrews 2 года назад

@@arjansahni Yes, 100%, that is the idea. If churn rate increases it means that more customers are cancelling their subscriptions every month, so the "lifetime" of your average customer will be shorter and you will make less money on them. I recommend you check out this other video I have about customer lifetime value presented in a slightly different way, I think it would help you understand this idea better: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OwCATJh4lNg.html

@rosefidgett5775 3 года назад

Hello Eric, I'm having trouble finding the customer lifetime value for Red Robin. Can you please make a tutorial? I think I'm doing it wrong. Thank you.

@biswarupchatterjee400 3 года назад

Hi Eric. Wonderful video. I just have one question. How to interpret the end result of this calculation ? What business decision i can make out of this particular calculation? please guide.

@eric_andrews 3 года назад

Hey biswarup, sure. If you know your customer lifetime value then that is the maximum that you can spend on marketing for one new customer to buy for the very first time, which is called your customer acquisition cost. Making sure that your customer acquisition cost is lower than your lifetime value ensures that you will make money on your relationship with every customer eventually, and that is the most important calculation for any business period.

@biswarupchatterjee400 3 года назад

@@eric_andrews Tons of Thanks. Good luck.

@marchel2611 3 года назад

Thanks Eric, it's helping me a lot, but can you share how to calculate the churn rate? Thanks

@eric_andrews 3 года назад

Yes I can! Churn rate (which is a monthly metric) is just = (clients lost this month) / (total clients last month) = churn rate So, you lose clients generally through cancellations of subscriptions. Churn rate only applies to subscription businesses. So if you had 200 clients on your subscription last month, but then 40 cancelled this month, your churn rate would be = (40/200) = 20%. Make sense? If you want to learn more startup metrics (including how we think about customer retention for non-subscription businesses) check out this video I just released on startup KPIs! ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-tuXILsUljKc.html

@marchel2611 3 года назад

@@eric_andrews thankss

@angelmaravilla4708 Год назад

@@eric_andrews Hi Eric! Hope you can help me with an school "business model doubt". Taking as an example, a consulting IT company with 3 "revenue sources": 1.- Recurring Revnue (Monthly license and Support service) 2.- One time sales (set up fees) 3.- Projects (with different period life time, and different payment periods) What are the metrics would you recommend to use, to represent all revenue in one dashboard? a) In the MRR can I normalize the value of projects and incorporate that in the MRR?, or that would be incorrect? b) What would be the metrics you'd use for each kind of revenue? Hope you can advise me!

@akshaypatil8155 3 года назад

if the business model is not subscription based, how do we indicate Average Order Value? you have written gross margin, but you have substracted the expenses like shipping, paying the factory...so is it gross profit % or net profit %?

@ntcuong01ct1 2 года назад

Dear Friends, I have a question: With a product have many versions, I want to estimate the life of a customer according each version to calculate the CLV, I think I will determine the life cycle of each version, right?. Thank you?.

@carlosgarzon58 Год назад

Hi eric I am watching the video, it is soo good I just have a question.. If I need to get a conclusion about the Break-even point in this example you provided... what would be the numbers I have to use? I hope you read me. Thanks in advance

@eric_andrews Год назад

Hi. Break-even in terms of what? Like, break-even CAC would be your LTV, because when CAC = LTV that is when you make $0 on a customer. Not sure if that is what you are after?

@carlosgarzon58 Год назад

@@eric_andrews @Eric Andrews what I am trying to ask is for example.. when a company like Netflix with subscribers coming and going from subscriptions will know they start to make a profit? or reach the break point of marketing expenses vs subscriptions or they are losing money? in recreated your example and My final CLTV = 8 while my LTV = 92 what that means?

@eric_andrews Год назад

@@carlosgarzon58 You need to look at the data cohortized. You could create another column next to gross profit which is cumulative gross profit, and add each month to the prior month, and that shows how your LTV builds up over time. From there you see which month the cumulative gross profit crosses the CAC. Or you can watch this other video I have about customer cohorts which at the end definitely gives an example of what I'm talking about ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OwCATJh4lNg.html

@jasimm476 2 года назад

Thank you ! If CLV needs historical data then any new company can not calculate or anticipate the customer lifetime value except after a few months, so CLV is not applicable to new businesses?

@eric_andrews 2 года назад

It's aplicable. New companies absolutely should estimate their LTV (won't be perfect, but will give you an idea), or else you are totally blind planning your customer acquisition cost targets. You have to make an estimate based on reasonable assumptions which are based on guesses or comparable companies.

@timl6126 3 года назад

For the Average Lifetime formula, how much historical data of churn would you say you need for it to be meaningfully accurate? For example, in the last 4 months of my business i’ve noticed a avg churn rate of 5% which would mean a Lifetime of 20 months but I highly doubt that’s going to hold for very long once my biz matures.

@eric_andrews 3 года назад

Great question. Ok, I have two tips. First, just be reasonable. Lower your churn over time in a reasonable way. The second thing, I think it may make more sense for you to be thinking about retention less in terms of churn and more in terms of cohorts, especially if you expect churn to change over the customer lifetime. I have a cohort retention video & a cohort revenue forecast video here & here. ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OwCATJh4lNg.html ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Q9lnHGFrfd4.html

@vunguyen0709 Год назад

Can I use this formula for my coffee business? And can u rcmd me a helpful tool for tracking CLTV?

@eric_andrews Год назад

Is your coffee business subscription-based or no? If subscription-based, yes you can use this formula. If not, check out my other video which should explain how to calculate customer lifetime using cohorts: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-OwCATJh4lNg.html Shopify has a customer cohort analysis dashboard which is good (will make sense after you watch that second video). If not, you may need to find an app or a data scientist who can break down the customer lifetimes for you.

@duncanmahood2878 4 года назад

Makes sense how Uber can be so damn cheap in places where they are trying to outcompete taxis for the first time. That VC money is paying for my rides... in the beginning at least!

@eric_andrews 4 года назад

That's a great example. Yes they have a very high LTV so can discount / market heavily in the beginning. Thanks for the comment!

@gquinciegcajuste7735 3 года назад

@prachisaxena2202 6 месяцев назад

Hi Eric, I am confused in LTV and CLTV . as I checked another articles in internet : LTV = LTV = Customer value * Average customer lifespan in this Cost is not included. And CLTV is LTV*Profit Margin . Can you please clear my doubt. Thanks

@eric_andrews 5 месяцев назад

CLTV and LTV are the same, people just use many different acronyms for the same thing. They all mean customer lifetime value

@jyothishwarriar 18 дней назад

Hi , Don't we consider new customer as we churn customer from last month & new customer will also be adding upto.

@RankaNikunj 3 года назад

3:44 i didn't understood that Average Lifetime formula. Why did you do 1/22% ? Please explain

@eric_andrews 3 года назад

Ok - so pretend you had 1,000 customers, and 22% cancelled everything month. Each month, you would have 22% fewer customers than the last month, right? If you waited many years until all the customers cancelled and then finally looked back and took the average lifetime of each customer (assuming they kept churning at 22% a month), it would be exactly 4.54 months average lifetime across those 1,000 original customers, which we can also get by using the formula 1 / 22%. Get it? It's just a mathematical shortcut.

@RankaNikunj 3 года назад

@@eric_andrews ok👍. Thank you for the explanation

@Argensan 3 года назад

@@eric_andrews I still don´t get this. Why by doing that formula you get the average lifetime in months? Haha Can you explain with more detail? Thanks!

@MohitSharma-ot2fb 2 года назад

@@eric_andrews Hi Eric, I not clear on this. Can you please share any derivation of this formula?

@natnakaya 2 года назад

Eric I just want to know how to calculate the Life Time. I do have the cohort churn. But I want to know how to calculate how many months clients stay with my product.

@eric_andrews 2 года назад

So you have the cohortized churn rates already?

@natnakaya 2 года назад

@@eric_andrews Corect

@eric_andrews 2 года назад

@@natnakaya Ya you can just add up all the percentages horizontally across your cohort and then convert that to a regular number and that will be the average lifetime of a customer. See what I mean?

@MinhDat131 3 месяца назад

Hi, Is the number of customers the total for one month or the total number of customers from the beginning until now?

@eric_andrews 2 месяца назад

One single month, grouped by the first month they purchased. We call that a "customer cohort", ex: "the July 2023 cohort had great retention" and you follow just the people that had their first purchase in July 2023 over a long period of time

@yutongamyli346 2 года назад

Hi Eric, I have a dumb question, why is it the avg life time of a customer 4.5 months but the visual table last fo 3 years? Thank you so much!

@eric_andrews 2 года назад

Well, the reality is that within one group of customers, there will be a large range of lifetimes, some one month, some 3 years on an individual basis. But mathematically if you took this entire group and calculated the average lifetime, it would be 4.5 months. So it is just to paint the visual story of the same math.

@oluwafemifadipe8187 2 года назад

@@eric_andrews Thanks for this response. Another dumb question if you don't mind. Why use 1 as the numerator? Is there a mathematical reason for this?

@angelmaravilla4708 Год назад

@@oluwafemifadipe8187 1 is the same as 100%; in this example, is the 100% of 1 year. So when you start from the fact that 22% are the "customer who cancell each month", you can make that calculation

@oluwafemifadipe8187 Год назад

@@angelmaravilla4708 thank you

@andrewhgordon 3 года назад

Given the customer acquisition cost, how much you pay to retain customers by 10 % ?

@eric_andrews 3 года назад

Hey Andrew - customer retention has nothing to do with customer acquisition. The first purchase is the customer acquisition, the subsequent purchases represent the retention. To improve retention you #1 obviously need a good product that people like, and beyond that you want to implement retention strategies to make sure people don't fall off or cancel. A good way to measure customer satisfaction is surveying them and calculating your Net Promoter Score....but that's for another video 😁

@chaudiep8274 7 месяцев назад

7:35 you said to spend 50 dollars to require new customer, I want to know where did you get that cost or you just made it up

@eric_andrews 5 месяцев назад

I made it up for my CAC, but that would just be (total marketing spend) / (total new customers) = $50

@Fazal285 3 года назад

great but expected a bit slower explanation. for example you took 730 customers at the beginning. but every month, we have increase in customer numbers. Isn’t that important to consider them as well in the calculation or are you JUST focusing on one particular month?

@eric_andrews 3 года назад

Hey Fazal - good question. We are not focusing on a particular month, we are focusing on one INDIVIDUAL customer. We are attempting to understand what the average number of months is that one single customer will stay with our business, and ultimately how much money we can expect to make on our relationship with any single customer - whether they bought for the first time last year, or they will buy sometime in the future. We use one month just as an example to see how long a group of customers buying at the same time stay on as a group, and then we just take the average at the end. The only way to calculate this number is to take the average of a group - because each single individual historical customer will have a unique lifetime obviously. This helps us understand how much we can spend in marketing to acquire one single new client. Does that make more sense?

@ntcuong01ct1 2 года назад

Dear Friends, I have a question: 1/ in the CLV, the life of a customer is an estimate of the time between a customer's first purchase date and a customer's last purchase date, right?. Thank you.

@eric_andrews 2 года назад

No, LTV represents the total lifetime purchases, rather than a specific period of time. In this situation we're on a monthly subscription so purchases and months are the same number but for a business that's not on a subscription lifetime value is the number of purchases regardless of the amount of time.

@ntcuong01ct1 2 года назад

Thank you

@PhilippeCzech Год назад

How do we forecast CLTV if we dont have any sales

@eric_andrews Год назад

Do you have a price you are planning to charge? Or is your product free? How will you make money?

@bhavikkamdar3036 2 года назад

Nice video but I am confused as to why you add in margin to the customer lifetime value? I believe the formula only calls for AOV x Average Number of Transactions per period x Customer retention time. So why are you adding in margin to this?

@eric_andrews 2 года назад

Customer lifetime value is all about profit, revenue is irrelevant. The reason why is that it tells you how much you can invest in marketing to acquire the customer in the first place. If you know you'll make, for example, $100 in profit on a customer during their lifetime, you can invest up to (not more than) $100 in marketing costs to acquire them and breakeven or better. LTV is all about profit and marketing.

@FatmaYousuf 2 года назад

How do you calculate CAC for business that are just starting out?

@eric_andrews 2 года назад

Depends what channel you plan to market on. If it's Facebook for instance, I would make an assumption around cost per click based on your audience (say, $1.50 per click) and then the conversion rate on the website (say 2%) and from there back into the CAC. So at a 2% conversion rate you'd need 50 clicks for one conversion so that would be 50 * $1.50 = $75 in that scenario.

@FatmaYousuf 2 года назад

@@eric_andrews Thanks for replying Eric! My business is not a subscription-based business model. It's an eCom business around sustainability niche. Does CAC still apply?

@eric_andrews 2 года назад

@@FatmaYousuf Oh definitely, it applies to any business. If you need customers you are going to have to pay to find them. You'll want to know how much you can afford to find a new customer, that's your CAC.

@FatmaYousuf 2 года назад

@@eric_andrews Thank you!!

@saibharadwajbadda4539 3 года назад

You should use PV (time value of money)

@eric_andrews 3 года назад

Hey Sai - that's actually a really cool suggestion. I think it would be especially impactful if the customer lifetime was really long, say 5-10 years or more (think a life insurance policy). Anyway thanks for the idea !

@leeshalit-blake2086 2 года назад

@@eric_andrews Hi Eric, if the subscription is average 3 years, what discount factor would you use for a SaaS platform? Thanks

@leeshalit-blake2086 2 года назад

Discount Rate % I mean.

@eric_andrews 2 года назад

@@leeshalit-blake2086 I personally would not use a discount rate and would not get too fancy as I think it would distort the data. I would just look at money in on the CAC and then money out on the LTV. I think PV is an interesting academic exercise but I wouldn't use it to plan my business

@angelmaravilla4708 Год назад

@@leeshalit-blake2086 you shloud use the "Cost of Capital" of your business as the "discount rate"; you can use your WACC or simply the Cost of debt of your business.

@user-gd3lx8gp9l 10 месяцев назад

Does subscriber lifetime value and customer lifetime value same?

@eric_andrews 10 месяцев назад

Yes most likely

@user-gd3lx8gp9l 10 месяцев назад

Appreciate it if you could give us a sample computation for subscriber lifetime value because most of the time all newsletter subscribers will not turn into a paying subscriber and will remain a free subscriber

@eric_andrews 10 месяцев назад

@@user-gd3lx8gp9l do you include the free subscribers in your average lifetime value? Or just want to know the ltv of paid subscribers?

@user-gd3lx8gp9l 10 месяцев назад

Hey there just wanna know If I acquire a new free newsletter subscriber today, how much revenue will they generate for my business in the future? Imagine a new (free) subscriber signs up to your newsletter. They stay subscribed for maybe 12 months, before unsubscribing. During those 12 months, they might 1. Buy the product 2. Click affiliate link

@eric_andrews 10 месяцев назад

@user-gd3lx8gp9l you're going to need to make assumptions about your subscribers spend. If you acquire 100 free subscribers what % of them buy something, and how much gross profit do you make from those purchases. Then you add up those total purchases and divide by your original 100 free subscribers to get the average subscriber LTV

@dhanush6502 3 года назад

Brother how do I do this calculation for a time period of 10 years and not in months

@eric_andrews 3 года назад

For a subscription business? Is it on monthly or annual subscription? Need a little more info to make a recommendation.

@dhanush6502 3 года назад

@@eric_andrews It is an annual based subscription

@eric_andrews 3 года назад

@@dhanush6502 Ok just you can literally do the exact same math as this video but just instead of months put years. My video shows a product where customers churn every month, but yours would be mathematically identical, but the customers would be churning off once each year. As simple as that. SO your churn rate would be a "yearly" churn rate, not monthly.

@dhanush6502 3 года назад

@@eric_andrews Thank you for helping me out brother....I really appreciate you getting back to me.

@eric_andrews 3 года назад

@@dhanush6502 Happy to help!

@jerryzennie8182 2 года назад

Suppose you run a Fashion Garment Showroom, what will be the Customer Life Time Value if a consumer is estimated to do 5 transactions worth Rs. 2000 each and you earn a profit of 20% on every transaction? (Answer to be mentioned in whole number)

@eric_andrews 2 года назад

It seems like you know the answer to this one already Jerry!

@biancaenne1804 3 года назад

Where is the spreadsheet?

@eric_andrews 3 года назад

Right there in the description in "resources and links" section !

@biancaenne1804 3 года назад

@@eric_andrews it's a link to subscribe and there is no spreadsheet after the subscription is done. am I missing anything? thanks

@eric_andrews 3 года назад

@@biancaenne1804 Once you subscribe you just click the text "download your template here" ! You're not seeing that? I just checked the landing page, seems to be working fine. Cheers

@biancaenne1804 3 года назад

@@eric_andrews I got it! haha thanks!

@hugoporto9374 3 года назад

7:31 Why do your CAC should be $50?

@eric_andrews 3 года назад

Hey - yes this is a really important point, I will help you understand. It was an example where I was discussing the relationship of LTV to CAC (customer acquisition cost). I was saying that if our LTV is $92 in profit (as I showed in the video), than if we were spending, for example, $50 to acquire one customer, we know we would eventually make money on our relationship with the customer, because $50 is less than our $92 LTV. Make sense?

@hugoporto9374 3 года назад

@@eric_andrews Understood! Tnx dude

@eric_andrews 3 года назад

@@hugoporto9374 happy to help

@yalcinberberoglu 2 года назад

There are 37 months in your calculation. You said 36 months but you started from month 0. So, you should finish the months at month 35.

@ilkermemis2044 2 года назад

Omg Einstein :0

@irfanabbassi9202 2 года назад

Kindly use real time data ...as assumptions only produce ideal result...far different from the reality

@eric_andrews 2 года назад

With real time data you don't need to do this forecast, you just analyze the average historical gross profit of your past customers. Does that help?

@dr.amitsingla7012 2 года назад

Hi @eric It would be great if you can just share the excel sheet on chat or email, it would be extremely helpful. And great content. It helped a lot. 👍

@eric_andrews 2 года назад

Hi - you can download it completely for free right there in the description, cheers!