Life Time Value is a simple concept but it can get pretty complicated, as we explain our blog post.

This workbook has been

created to help you understand some of the basic principles, but you'll need to adapt it to your company's specific needs.
We hope that you enjoy playing around with it. It will help you get a feel for the factors that have a big impact on the long
term value of customers. Then consider how you could change your acquisition and retention marketing to deliver business
advantage.
The Comparison LTV worksheet lets you model 2 different types of customers. We've created it as "Best" and
"Average" customers, but it could be re-worked as "Search" and "Affiliate" acquired customers, or "People who bought
product A" and "People who bought product B". Of couse, you could add a third category to give a spread of best, average
and worst, so feel free to adapt the sheet to suit your objectives.
Before making BIG business decisions on your workings so far, you'll probaby need to validate your thinking through the
Detailed LTV worksheet. It goes into much more detail for each specific customer profile. For example, take your profile
data from the "Best" or "Average" customers and work through the calculations, creaing 2 separate sheets as you go. You
will then
be able
look
critally
the LTV
of both
segments
over a
period
time. of
If you
onlyvale.
want to look at 3 years,
This
workbook
has to
been
created
byat
Avinash
Kaushik
and
David Hughes
tolong
illustrate
theof
concept
lieftime
delete a couple of columns - adapt it to your needs...we won't mind!
And please read our disclaimer...
This workbook has been created in good faith by Avinash Kausik and David Hughes as a training tool to help you
understand the principles of Life Time Value. We will not be held responsible for the consequences of any use, errors in, or
misinterpretation of, the models in these worksheets, or for any desisions taken as a result of using this spreadsheet. So
there.
David Hughes:
http://www.nonlineblogging.com
http://twitter.com/_davidhughes
Avinash Kaushik:
This workbookhttp://www.kaushik.net/avinash
has been created by Avinash Kaushik and David Hughes to illustrate the concept of lieftime vale.

http://twitter.com/avinashkaushik

275407543.xlsx

Answers. These cells will be magically

calculated based on the values you put in
the table on the left

Questions. Fill in the yellow boxes and

the spreadsheet will take care of the rest.

Best Customers

Average
Customers

Acquisition Cost .How much did you pay to

acquire these customers?

40.00

12.00

Average order value. How much do they

spend per order?

92.00

70.00

Orders per year? Quite simply, How many

orders do they place per year?

Retention? How many years will they be

customers for?

10%

10%

Net profit? What is the net profit percentage

of goods sold?

275407543.xlsx

Lifetime Gross Revenue

Average
Best Customers
Customers

1,380.00
280.00

Life Time Net Profit

98.00

16.00

Questions. Fill in the yellow boxes and the spreadsheet

will take care of the rest.
Year 1
Customer Segment. How many of a specific group of
customers will you start with?
Acquisition Cost? How much did you pay for each new
customer? We won't use this figure - see note to explain

Year 2

Year 3

Year 4

Year 5

3,000

20.00

Retention Rate. What % of customers will you keep from one

year to the next?

60%

65%

70%

75%

80%

Total Orders. How many orders/sales per customer per year?

They may place more in future years

Average order value. How much is each sale or order worth,

and will this rise over time?

60.00

65.00

70.00

75.00

80.00

Net Profit. What % of each order is left after all costs have
been accounted for?

10%

12%

12%

15%

15%

Discount Rate. This recognises our money could be better

spent on something else - see note to explain

0.9

0.81

0.729

0.656

Year 1

Year 2

Year 3

Year 4

Year 5

Answers. These cells will be magically calculated based

on the values you put in the table above.

Total Customers. The number of customers at the start of

each year from the original segment

3,000

1,800

1,170

819

614

Total Revenue per Customer. This is the total revenue per

year for individual customers

180

195

280

300

400

Total Revenue. Annual revenue generated by all the

customers in that year

540,000

351,000

327,600

245,700

245,700

Cumulative Revenue. The revenue generated from the

(remaining) original customers every year

540,000

891,000

1,218,600

1,464,300

1,710,000

Annual Net profit per customer. Simply, the profit each

customer generates in that year.

18.00

23.40

33.60

45.00

60.00

Total Net Profit. Profit generated by all the original customers

in that year.

54,000

42,120

39,312

36,855

36,855

Profit at Net Present Value. The profit made each year,

even if we offset a better way of spending it!

54,000

37,908

31,843

26,867

24,177

Cumulative Net Profit at NPV. The profit generated in

successive years from the original customers.

54,000

96,120

135,432

172,287

209,142

Individual LTV at NPV. The cumulative amount of net profit

each original customer is worth each year.

18.00

32.04

45.14

57.43

69.71

275407543.xlsx

Customers
Purchases Per Year
Average Order Value
Total Spend

2
$60
$120

Search Marketing
Customers
Purchases Per Year
Average Order Value
Total Revenue

4
$70
$280

Gross Profit Margin

10%

Gross Profit

$28
Best
Customers

Purchases Per Year

Average Order Value
Total Revenue

4
$70
$280

Gross Profit Margin

10%

Gross Profit

$28

Best
Customers
Gross Profit
Acquisition Cost
Net Profit

$28
$8
$20
Best
Customers

Life Expectancy

3 years

Revenue Year 1

$280

Revenue Year 2

$280

Revenue Year 3

$280

Lifetime Revenue

$840

Gross Profit Margin

10%

Lifetime Gross Profit

$84

Acquisition Cost
Lifetime Net Profit

$8
$76

Price Conscious
Customers
2
$50
$100
10%
$10

Average Customers
2
$50
$100
10%
$10

Average Customers
$10
$4
$6

Average Customers
2 years
$100
$100
$0
$200
10%
$20
$4
$16