How is LTV calculated? What does it include? Do you consider costs?

LTV (Lifetime Value) is a metric that reflects the total profit generated by a single user over the entire duration of their interaction with the product.

How it is calculated:

• Usually, LTV is calculated as the sum of all revenues from a user over a period, minus the costs of acquiring and servicing them.
• The formula can look like this: LTV = (Average revenue per user over a period) × (Average user lifespan) - CAC

What is included:

• Revenues from purchases, subscriptions, advertising, and other monetization channels.
• Costs of acquiring the user (CAC — Customer Acquisition Cost).
• Sometimes operational expenses for supporting the user are also considered.

Should costs be considered?

• Yes, to assess the true value of a user, costs should be taken into account; otherwise, LTV will be overestimated.
• It is especially important to subtract CAC and, if necessary, other variable and fixed costs associated with the user.