Did you know that offering subscriptions in addition to one-time purchase options can increase your customer lifetime value (LTV) by 230%?
If you’re curious about the impact that offering subscriptions could have on your bottom line, Recharge’s new LTV calculator makes it easy. Simply plug in a few key metrics for your business, and the calculator will show you not only how much your LTV can increase by offering subscriptions, but also your monthly revenue. Give the calculator a try for yourself to see the difference.
Want to learn more about how the calculator works—and why it’s so important to measure LTV for your business? Read on to learn more about the essentials of LTV.
Key takeaways
- Customer lifetime value is a key metric for assessing the health of ecommerce businesses.
- Offering subscriptions in addition to one-time purchase options can substantially increase LTV.
- Recharge’s LTV calculator makes it easy to calculate the amount your brand’s LTV can increase by offering subscriptions.
What is customer lifetime value (LTV)?
Customer lifetime value measures the amount a single customer spends with your business throughout their average customer lifespan. It is used to assess the amount of revenue that your business can expect from the average customer.
Unlike average order value (AOV) or average purchase value, which measure the average amount of money a customer spends in a single purchase with you, LTV tracks customer spending over time. This gives greater insight into the overall health of your business when considered in the context of other key metrics, such as customer acquisition costs (CAC) and customer churn rate.
Other meanings of LTV
LTV can also refer to loan-to-value ratio, a metric that assesses lending risk and is often used in conversations about private mortgage insurance and home equity loans. For the purposes of this blog post, we’ll focus on LTV as it pertains to the ecommerce world in terms of customer lifetime value.
Why is LTV important for ecommerce businesses?
Increasing LTV and tracking it over time is crucial for ecommerce businesses. Not only can LTV help increase revenue—it can also be a strong indicator of customer loyalty. After all, these loyal customers are spending more with your business over time, not just in a single transaction.
In today’s market, the cost to acquire customers can be 5–25 times greater than the cost of retaining an existing customer. This makes it all the more important to balance your customer acquisition strategy with a focus on increasing customer loyalty and keeping your existing customers with your business.
How does the calculator work?
To calculate the impact that offering subscriptions can have on your LTV and monthly revenue, you’ll first need to know a few key metrics for your business:
- Your average customer LTV
- Your average number of monthly customers
- Your customer churn rate
Once you plug in those numbers, you can toggle to see the impact that offering subscriptions, or a combination of subscriptions and one-time purchases, can have on your business.
Customer lifetime value calculation
There are a number of different formulas that businesses can use to calculate customer lifetime value. At Recharge, the following customer lifetime value formula is used: annual revenue per user / customer churn.
How can offering subscriptions increase LTV?
Due to their recurring nature, subscription businesses have built-in opportunities to increase customer lifetime value. By repeating purchases on a set cadence, your brand of course benefits from a recurring revenue stream—but the benefits don’t end there.
With subscriptions, you have the opportunity to get to know your customers over a longer period of time, allowing you to track their purchasing behavior and collect their valuable feedback so you can pivot your offerings to best suit their needs. This can help build loyalty and increase trust in your brand, paving the way for customer relationships that stand the test of time.
As shown with the LTV calculator, to make your subscriptions offerings most impactful, offer them alongside one-time purchase options. This can lower the barrier to entry, making your products more approachable—customers can try them once first before committing to a recurring purchase option.
Looking to see the impact that offering subscriptions could have on your brand? Try the LTV calculator for free today.
