lifetime value

Lifetime value (everyone writes LTV) differs from its nearest neighbours by one thing: the time horizon. Average order value measures how big a single sale is. Revenue per fan measures a month. LTV measures the whole relationship, from the first subscription to the day the account goes quiet, and it is the only one of the three that can justify spending money today to acquire someone who buys nothing this week.

How do you calculate LTV?

Two ways, and they answer different questions.

Method	How	Good for	Weakness
Backward	Take fans who have already left, sum everything each one ever paid, deduct the platform cut and refunds, divide by their number	Knowing what happened	Only describes people who left, and only the past
Forward	Average monthly revenue per fan, divided by the monthly churn rate	Planning and pricing	Falls apart the moment churn is unstable

The forward version is the quick one, and its arithmetic says something worth understanding on its own: LTV is revenue per month multiplied by how long fans stay. Slowing departures raises the value of every fan you already have, without selling anything new to anyone, which is why retention work and revenue work are the same work.

Both versions need the same hygiene: work in net revenue, after the platform’s share and after refunds and chargebacks. An LTV calculated on gross is a number about someone else’s income.

Why does this number change pricing decisions?

Because it tells you what the entry price is for. Once you can see what a fan is worth over the whole relationship, the job of the cheapest tier stops being to extract the most money available on day one and becomes to get the relationship started. That single shift changes three decisions at once:

• What you can afford to spend acquiring a fan. Acquisition only makes sense against lifetime value, never against the first payment.
• Whether a free page is a cost or an investment. With no LTV figure, it always looks like a cost.
• How hard to push early. Our data shows that pitching before the sixth message drops conversion by roughly a third, with the optimum after about ten exchanges. A team paid on today’s total will pitch long before that; a team reading LTV will not.

It also reframes what a lost fan costs. The loss is not the subscription you stopped collecting. It is everything he had not bought yet.

What makes an LTV figure wrong?

Four things, and the first is the one that survives into every spreadsheet:

1. The average. One whale drags the mean far above what a typical fan is worth. Report a median alongside it, or you will price the account for a person who only exists once.
2. Survivorship. Computing only on fans who have left excludes your best ones, who are still there and still paying. The backward method structurally understates.
3. Mixing populations. Fans from a free page and fans who paid to subscribe do not have the same lifetime value, and averaging them produces a figure that describes neither.
4. A stale churn rate. The forward formula is a division; if the denominator is six months old, so is the answer.

The reading that survives all four is by arrival month. Cohort analysis gives you an LTV curve per group instead of one number for everybody, and a curve is what tells you whether the work is getting better.