How to Measure LTV (Lifetime Value) of Your Subscribers

How do you identify your ideal audience? Perhaps, looking into the value of your subscribers could lead you to the most profitable segment. 

That’s what subscriber LTV is! It paints the complete picture of your business’s financial situation. By measuring the net profit, you can estimate the money to acquire new audiences. This way, you can strategize your marketing spend and maximize your ROI.

Whether you’re stepping into Saas, E-commerce, or subscription box business, knowing how to calculate the LTV of your subscribers will drive you towards success. 

Ready? So, let’s dive in! 

What is Subscriber Lifetime Value?

To understand Subscriber Lifetime Value, let’s first understand Customer Lifetime Value (CLTV).

Customer Lifetime Value is the average money expected from a customer over their entire lifecycle. CLV or LTV help businesses understand how well their product resonates with their customers.

Coming back to subscriber lifetime value, it’s applicable in the subscription context. It focuses on the value of individual subscribers.   

Now, let’s define it. Subscriber Lifetime Value (LTV) is the estimated revenue per subscriber during their entire business cycle.  

It is a key metric to estimate the profit on marketing spend or customer acquisition cost.

Especially, subscription businesses where the churn rate is higher. So, it’s important to fine-tune your marketing spend based on customer value.

Why Subscriber Lifetime Value Matters?

LTV helps to build a smarter business — by refining your marketing and client targeting strategy. 

 Here’s how your business benefits from subscriber lifetime value (LTV):

• Optimize Your Marketing Spend

Does a specific customer segment show a high LTV? That’s your pot of gold! Thus, you can focus on the specific segment and direct your marketing efforts towards them.

• Decrease Your LTV/ CAC ratio

The LTV to CAC ratio indicates your marketing efficiency and practically 3:1 is the ideal ratio. Moreover, you can even tweak this golden ratio for better profit margins. 

• Business Viability 

LTV captures the big picture! A deeper insight into the long-term business viability. For example, it shows the time of year or events that actually favour your business. This way, you can make better-informed decisions.

• Loyalty and Customer Satisfaction

Subscribers with a higher lifetime value are more likely to be engaged. When they stick long, they are more likely to opt for upsells and additional purchases. Thus, they join your loyal customer base.

• Indicates Repeat Sales and Customer Retention

High-value customers often end up spending more. This way, you can find prospects for repeat sales. LTV also helps to drive your customer satisfaction and retention rates.

How to Calculate LTV for Your Subscribers?

Given that, let’s understand the actual calculation!

It is calculated by multiplying the Average Revenue Per Subscriber (ARPS) by the Subscriber Churn Rate.

Subscriber Lifetime Value(LTV)=Average Revenue Per Subscriber (ARPS) x  Gross Profit MarginChurn Rate

Meanwhile, let’s look at the primary inputs!

Average Revenue Per Subscriber (ARPS): The average revenue per subscriber for your customer base for a given period. For example, if you earned $60,000 from 1,000 subscribers, then average revenue is $60. 

Gross Profit Margin: It is the difference between sales revenue and cost of revenue.

Subscriber Churn or Attrition Rate: The percentage of subscribers who cancel your subscription. 

Customer lifetime = 1/ Churn Rate

So, you can expect a high customer lifetime value from a loyal customer.

Subscription Lifetime Value Example

First Method:

Let’s say you run a subscription box for pet supplies — treats, toys, and accessories.  Your monthly subscription price is $50. The average spend per box is $30. And the churn rate is around 5%. 

Since the monthly subscription per user is $50. 

The Average Revenue Per Subscriber = $50

The Gross Profit Margin = (Net Sales – Cost of Goods Sold) =  (50 – 30) = 20 

% Gross Profit Margin = 0.4

And, Churn Rate = 5 %

So, 

Subscriber Lifetime Value(LTV)=Average Revenue Per Subscriber (ARPS) x  Gross Profit MarginChurn Rate

After adding the values,

Subscriber LTV=50 x 0.40.05 =  $400

Finally, Subscriber LTV =  $400

Alternative Method:

Subscriber LTV =  Average Revenue Per Subscriber  x  Customer Lifespan  x  Profit Margin

Here, the Customer Lifespan = 1/Churn Rate 

= 1/ 0.05 = 20 months

Average Revenue Per Subscriber = Monthly Subscription Price x Customer Lifespan

= $50 x 20    = $1000

Subscriber LTV  =   ARPS x Profit Margin

= $1000 x 0.4

LTV  =  $400

What are the Factors Affecting Subscriber Lifetime Value?

If you are struggling with a low LTV, here are several factors that come into play.

Customer loyalty, spending and satisfaction are closely related to LTV. 

That said, here are a few factors worth focusing on for higher LTV!

The obvious:

• Churn Rate
• Average Order Value
• Purchase Frequency of your existing customer
• Gross Profit Margin
• Discount rate

The unseen:

• Customer behaviour
• Engagement
• Customer retention
• Customer Satisfaction
• High-quality subscription content & user experience

These parameters are highly variable and affect LTV over time.

So, businesses can adjust these variables for a high customer lifetime value. It’s crucial to understand how they are inter-related and boost your customer LTV.

Tips to Increase LTV for Your Subscribers

Follow these tips to maximize your subscriber lifetime value:

Improve Lifetime Value (LTV) of Subscribers 

• Segment Your Subscribers

Break down your customer base into different segments based on similar characteristics. Thus, you can easily compare the LTV for subscription customers compared to one-time customers. Also, you get more insights on individual subsets of customers.

• Combine Subscriptions with One-time Purchases

Choose a two-pronged approach, offering both subscriptions and one-time purchases. While subscriptions offer long-term customer relationships, one-time purchases help with quick revenue and reduce the churn.

• Optimize Product Prices and Offers

Once you know the LTV, you can estimate the product’s perceived value and fine-tune the marketing campaign. Instead of simply raising your prices, restructure your subscription tiers. 

For example, if your monthly food subscription box costs $60. You could reward the subscribers who commit longer with lower prices. Now, this is a fail-proof technique for increasing your LTV.

• Set Budget for Ad Campaigns

Optimize your marketing ad budget with LTV. Strategize your maximum ad bid based on conversions and LTV. Thus, you don’t end up overspending or underspending.

• Identify cross-selling and Upselling Opportunities

Boost your LTV further by cross-selling or up-selling your services. First, identify high-value customers, then nudge them into suitable cross-sells or up-sells. Use purchase data, wishlists, bookmarks, or customer behaviour for the right recommendations.

• Improve Your Customer Experience

Excellent customer service could be a game-changer! Yes, it’s your way to repeat purchases. Offer omni-channel customer support – chats, phone, email, and social media. Besides, a transparent return and refund policy also matters. Collect feedback through surveys or other feedback systems.

Final Few Words

Subscriber Lifetime Value is a crucial metric offering insight into your subscription business. A high LTV means your subscription business aligns with customer expectations. Customer retention, satisfaction, and loyalty are interrelated to LTV. 

By calculating the value of a customer, you can devise a smart and sustainable business plan. Thus you find your ideal audience and also boost your overall revenue. Be your customer’s advocate; offer a service or product that’s worth their time and money! 

FAQ-Related to How to Measure LTV (Lifetime Value) of Your Subscribers

1. How to calculate Subscriber Lifetime Value?

The subscriber lifetime value is the average money expected from an individual subscriber. It is calculated by dividing the average revenue per subscriber by the churn rate. Subscriber LTV formula: (Average revenue per subscriber/ Churn Rate)

2. Is “Subscriber Lifetime Value” and “Customer Lifetime Value” the same?

Customer Lifetime Value is a broader term that applies to all businesses. It’s the estimated revenue from a single customer over time. But, subscriber lifetime value is a specific metric for understanding total revenue from an individual subscriber. This way, SLTV is applicable for subscription businesses.

3. What drives customer lifetime value?

Customer lifetime value is influenced by several factors:

• The average customer spend
• Purchase frequency
• Churn rate
• Customer retention
• Customer satisfaction
• Engagement