💼 Customer Lifetime

Customer Lifetime#

The expected duration of a customer’s active relationship with a business.

Important

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What it is#

Customer lifetime is the average length of time a customer keeps buying from or using a business before churning. It is measured in time units (months, years) and is a key input to lifetime value (LTV) — LTV is the revenue or profit earned across that span.

Formula#

If you know the churn rate (the share of customers lost per period), the expected lifetime is its reciprocal:

\[\text{Customer Lifetime} \approx \frac{1}{\text{Churn Rate}}.\]

This follows from modelling churn as a constant per-period probability: the expected number of periods until a customer leaves is \(1/\text{churn}\).

Worked example#

At 5% monthly churn,

\[\text{Customer Lifetime} = \frac{1}{0.05} = 20 \text{ months}.\]

How it’s used#

It plugs straight into LTV and unit economics:

\[\text{LTV} = \text{ARPU} \times \text{Gross Margin} \times \text{Customer Lifetime},\]

and the resulting LTV is compared against CAC, with LTV:CAC ≥ 3 as the healthy benchmark.

Limitations#

Constant-churn assumption — real churn is highest early and falls for loyal cohorts, so \(1/\text{churn}\) can mislead.
Sensitivity — because lifetime is \(1/\text{churn}\), a small churn error swings it a lot (5% → 20 months, but 4% → 25 months).
For retention-driven businesses, refine it with survival analysis or cohort analysis rather than the shortcut.

Theme: Business & Growth Analytics · All terminology

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Mind map — connected ideas

Churn · Retention · Gross LTV (Customer Lifetime Value) · LTV (Customer Lifetime Value) · Cohort-Based LTV (Simple Version)

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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 · Cohort-Based LTV (Simple Version) · Conversion Rate (CR) · Cost-Per-Click (CPC) Models · Cross-Selling · CTR (Click-Through Rate) · Customer Segmentation · D2C (Direct-to-Consumer) · FTEs