Cohort-Based LTV (Simple Version)#
Lifetime value estimated by tracking the revenue of customer cohorts over time.
Important
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What it is#
Cohort-based LTV estimates lifetime value from observed behaviour rather than a churn assumption. Customers are grouped into cohorts by when they joined (the January 2025 cohort, the February 2025 cohort, and so on), and you track how much revenue each cohort generates month by month, then sum it — so the retention curve is measured, not assumed.
The method#
Define cohorts — e.g. everyone acquired in January 2025.
Track average revenue per customer for each month after signup (month 0, month 1, and so on).
Accumulate that revenue until the cohort stabilises or churns out.
Estimate the tail — if the curve has flattened, take the total; if not, fit a simple decay (exponential or linear) to project the remaining months.
Formula#
Summing average per-customer revenue across months, optionally discounted to present value:
where \(T\) is the months tracked and \(r\) is an optional discount rate (often dropped in a simple calculation).
Worked example#
A 100-customer January cohort with average per-customer revenue of $100, 40, 38, 35, 32, 30 over months 0–5 gives
with later months projected via a decay assumption if revenue is still falling.
Why it beats the churn shortcut#
Because it uses real observed retention and spend, cohort LTV captures the early drop-off and long-tail loyalty that a flat \(1/\text{churn}\) misses, and it exposes differences by acquisition month, channel or segment — making it easy to see whether retention is improving or worsening over time.
Theme: Business & Growth Analytics · All terminology
Hint
Mind map — connected ideas
Cohort · Predictive LTV (pLTV) · Customer Lifetime · Gross LTV (Customer Lifetime Value) · Retention
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More in Business & Growth Analytics
Blended CAC (Customer Acquisition Cost) · CAC (Customer Acquisition Cost) · Cannibalization · Channel-Specific CAC (Customer Acquisition Cost) · Churn · Cohort · Conversion Rate (CR) · Cost-Per-Click (CPC) Models · Cross-Selling · CTR (Click-Through Rate) · Customer Lifetime · Customer Segmentation · D2C (Direct-to-Consumer) · FTEs
See also
Source article Adapted (context, re-expressed) in our own words from: Cohort-Based LTV (Simple Version) (insightful-data-lab.com).