Customer Lifetime
Why it matters
Lifetime sits inside lifetime value, which is average revenue per customer, times gross margin, times lifetime. A small gain in retention stretches the average lifetime and lifts the revenue from every customer already won. It also sets the ceiling on acquisition spend. A customer base that stays 20 months supports far more spend per customer than one that stays four.
Lengthening lifetime through better onboarding, stickier value or expansion is often cheaper than winning the same growth from new customers.
How to apply it
- Estimate it as one divided by monthly churn, then compare with the actual retention of older cohorts.
- Recalculate whenever churn moves meaningfully. It is not a constant to set once.
- Split it by plan, channel and customer size. An average can hide a wide spread.
- Set the acquisition budget per segment from its own lifetime. A longer-lived segment justifies a higher cost to win.
- Treat anything that shortens time to first value as a lifetime lever, not only a satisfaction one.
What it is
Customer lifetime is how long a typical customer keeps paying. It is the time half of lifetime value: lifetime is measured in months, and lifetime value turns it into money by multiplying by revenue and margin.
For a subscription business, the simple estimate is one divided by monthly churn rate. At 5 per cent monthly churn, the average customer stays about 20 months. At 8 per cent, about 12.5 months.
The sum assumes churn stays steady month after month. In practice it is usually higher in the first months and lower later, so the figure is a rough guide, best checked against real cohorts of customers who joined in the same period.
Common mistakes
- Guessing it from memory. "About a year" is rarely the measured number.
- Using revenue churn for one figure and customer churn for another in the same sum.
- Counting only customers who have already left. Those still active are part of the picture.
