How PMs can measure the success of their Product — Understanding Customer Lifetime Value

Benefits of Customer lifetime value :

  • It encapsulates the customer’s overall gross margin contribution from day 1 till they churn out.
  • It helps to streamline resources towards retaining old customers instead of running after the new ones.
  • ARPC ( Avg revenue per customer )
    It is defined as the average monthly revenue earned from each customer. It comprises revenue earned from all kinds of streams such as direct sales, subscription, advertisement, cross-sells, and upsell of product to existing customers.
  • COGS ( Cost of goods sold ) — COGS include all the variable costs associated with delivering products to customers, such as customer support, retention initiatives, product refunds/ returns.
  • GM ( Gross margin ) — Subtracting COGS from ARPC will give gross margin per customer.
  • Churn rate — It’s the %age of customers who dropped off from your product each month. On average, this %age trends at 3 to 5% every month for the majority of the products.
  • Customer lifetime value (LTV) — It’s an aggregation of the monthly gross margin divided by the churn rate. It depicts the value generated by an average customer over the entire duration of their engagement with the product.

Customer acquisition cost ( CAC )

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Rohit Verma

Rohit Verma

Senior Product Manager @AngelOne, ex-@Flipkart, @Cleartrip. Interests: Product, Technology, Strategy, Startups, Fintech & E-commerce!