How to Calculate Customer Lifetime Value (LTV)

Customer Lifetime Value (LTV) measures the total value that you are likely to capture from an average customer.  To measure LTV, you need to know your new business ASP, the average likelihood for a customer to upsell (attach rate), your upsell ASP, and your renewal rate.  The LTV calculation would then be to take (New Business ASP + (Attach Rate * Upsell ASP)) * (1 / (1 - Renewal Rate))

For example, let’s say you have the following metrics:

  • New Business ASP = $5,000

  • Attach Rate = 25%

  • Upsell ASP = $10,000

  • Renewal Rate = 80%

Your expected Customer Lifetime Value would be ($5,000 + (25% * $10,000)) * (1 / (1 - 80%)) = $37,500.  This means that you would expect a new customer to contribute $37,500 of revenue to your business over their lifetime.

To measure LTV with Salesforce data,

you first need to calculate the sub-metrics that feed into it:

  • To measure New Business ASP, take the sum of the Amount from closed won new business opportunities that have a close date in the period you are looking at, and divide by the number of new business opportunities won that have a close date in the period you are looking at.

  • To measure Attach Rate, first find the number of upsell opportunities that have been closed won in the time period you’re measuring, and divide that by the number of new customers you landed.

  • To measure Upsell ASP, take the sum of the Amount from closed won upsell opportunities that have a close date in the period you are looking at, and divide by the number of upsell opportunities won that have a close date in the period you are looking at.

  • To measure Renewal Rate, first count the number of closed won opportunities with a type of “renewal” with a close date in the period you are measuring.  Then count the number of opportunities that had a subscription end date in that same period. Then divide the closed won renewal opps by expired opps.

Once you have these sub-metrics, you can take (New Business ASP + (Attach Rate * Upsell ASP)) and multiply by (1 / (1 - Renewal Rate)).

To measure LTV with HubSpot CRM data,

you first need to calculate the sub-metrics that feed into it:

  • To measure New Business ASP, take the sum of the Amount from closed won new business deals that have a close date in the period you are looking at, and divide by the number of new business deals won that have a close date in the period you are looking at.

  • To measure Attach Rate, first find the number of upsell deals that have been closed won in the time period you’re measuring, and divide that by the number of new customers you landed.

  • To measure Upsell ASP, take the sum of the Amount from closed won upsell deals that have a close date in the period you are looking at, and divide by the number of upsell deals won that have a close date in the period you are looking at.

  • To measure Renewal Rate, first count the number of closed won deals with a type of “renewal” with a close date in the period you are measuring.  Then count the number of deals that had a subscription end date in that same period. Then divide the closed won renewal deals by expired deals.

Once you have these sub-metrics, you can take (New Business ASP + (Attach Rate * Upsell ASP)) and multiply by (1 / (1 - Renewal Rate)).

Rekener can calculate LTV automatically,

and can measure it by account, industry, company size, segment or any other breakdown.  Check out the Rekener Platform to see how Rekener can calculate Lifetime Value for your business automatically.

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Gregory Keshian

Greg is COO and Co-Founder at Rekener. Greg’s entire career has been focused on using BizOps to grow recurring revenue businesses. Before joining Rekener, he served as VP of Operations at ZeroTurnaround, where he built its BizOps practice and team. He did the same for the AVOKE call center analytics business, a SaaS company within BBN Technologies. He got his start in BizOps for recurring revenue businesses while at AppNeta.

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