Customer Lifetime Value (LTV) is the projected, discounted revenue that a customer will generate during their lifetime. LTV is a key business metric for many types of businesses.
Customer Lifetime Value (LTV) is the projected, discounted revenue that a customer will generate during their lifetime. LTV is a key business metric for many types of businesses, historically the domain of marketing functions. The prediction model can have varying levels of sophistication and accuracy, ranging from a crude heuristic to the use of complex predictive analytics techniques.
Customer Lifetime Value (CLTV) takes the following general form:
$$ {\text{CLV}}={\text{GC}}\cdot \sum _{{i=1}}^{n}{\frac {r^{i}}{(1+d)^{i}}} $$
where ${\displaystyle {\text{GC}}}$ is yearly gross contribution per customer, ${\displaystyle n}$ is the horizon (in years), ${\displaystyle r}$ is the yearly retention rate, ${\displaystyle d}$ is the yearly discount rate. Extensions of this include marketing costs.
${\displaystyle {\text{GC}}}$ and ${\displaystyle r}$ are often the quantities of interest. One can use simple heuristics based on historical data, or complex predictive model to estimate them.
