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How to calculate the lifetime value (LTV) of subscriptions
Summary
The Lifetime Value (LTV) is a metric that provides the financial worth of a subscription during its lifetime, to the business. In other words, it is the average revenue that a subscription generates until it cancels.
Average Revenue per Paid Subscription (ARPPS) = Total MRR / Total Active Paid Subscriptions
Example
Consider the duration of three months from January to March.
At the end of January, the total active paid customers are 600, and the churn for January is 10. The churn rate % is calculated as (10/600)*100 = 1.75.
At the end of February, the total active paid customers are 590, and the churn for February is 20. The churn rate % is calculated as (20/590)*100 = 3.5.
The same procedure applies for the upcoming months.
If you take the inverse of the average of the last three months' churn percentage, you would be able to get the Lifetime of a subscription.
If you multiply the lifetime with the average revenue per paid subscription, you will arrive at the Lifetime Value of a subscription.
Please refer to the screenshot below:
Note: The "lifetime value" metrics in Revenuestory do not have the "View Underlying Data" option. This is because it is merely a projection of how many months into the future the subscription would exist. However, you can download the entire report using the Download Report option: %%% cbext%%%
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