Lifetime Value

Measure advertising by the first payment alone and a subscription product always looks like a loss. On a $15-a-month product, acquiring a customer for $54 books as a $39 loss in the first month.

That arithmetic nearly ended advertising at Pagedeck. Ravi spent $2,300 on ads in a month and the paid conversions that month came to $700. On those numbers, stopping was the right call.

Grace opened the account retention records and the judgment reversed. Teams that converted to paid stayed an average of 14 months, so what one customer leaves behind was not $15 but about $210. A business that loses money counted over one month makes about four times its money counted over fourteen.

Multiply what one customer pays per month by the average number of months they stay. It comes in four steps.

1. Get the monthly amount. Use average revenue per user (ARPU), or the plan price directly when plans are simple. Annual payers get divided by 12 to land on a monthly figure.
2. Get the average months retained. It is the inverse of monthly churn. With 7 percent leaving each month, one divided by 0.07 is about 14 months.
3. Multiply the two. $15 times 14 is $210.
4. Subtract margin. Counting on the value left after server costs, payment fees, and support labour is more accurate. At an 80 percent gross margin that $210 becomes about $168.

Two inputs make the number jump. One is churn. On a product only a few months old, calculating from a single month's figure swings the retained months between eight and thirty. Splitting customers into cohorts by signup month and reading each retention curve first is safer.

The other is growth. When customers add seats or move to a higher plan the monthly amount rises, so whether that increase is included has to be settled one way for the whole team, or the numbers cannot be set side by side.

"It's a loss on the first month and four times over on LTV."

Including the retention period flips the judgment.

"This LTV came out of a churn figure that hasn't settled."

The input is still moving.

"Let's agree first whether we count on margin or on revenue."

Stopping two different values from sharing one name.

At Pagedeck, Grace and Ravi both use this figure. Grace counts it net of margin, and Ravi sets it against the customer acquisition cost (CAC). When the LTV to CAC ratio clears 3 they raise the budget; below that they change channel. The ratio does not decide alone, because a long payback period means a healthy ratio without the cash on hand to scale spending.