Method and assumptions
A simple LTV model is most useful when its assumptions are explicit. Use observed purchase frequency and lifespan from a mature cohort rather than a short launch period.
Revenue LTV = order value × annual purchase frequency × lifespan. Net LTV = revenue LTV × gross margin - annual service costs × lifespan.
Common questions
Is LTV a forecast or an accounting result?
This model is a forecast based on entered behavior and margin assumptions.
Should subscription churn be used instead?
A retention or churn cohort model is usually more precise for subscriptions.
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