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hi everyone Eric here and today we're gonna talk about how to calculate customer lifetime value and why this is the most important metric for many companies first off what is customer lifetime value it's the total profit generated from one client over their lifetime of buying with the company so why would a number like this be important well it's really most important for subscription-based companies because these companies rely on a customer coming back and buying over and over and over and over and over and over for many many many months so SAS companies ecommerce companies anything on a subscription they're really really focused on this metric and the reason why they're focused on this metric is because this met with this metric they can figure out how much to spend in marketing so when these companies think about marketing they think about the customer acquisition cost or the CAC as they would call it and that is basically how much money do you spend to bring one client into the cusp into the company so let's say in January you spent $1,000 in marketing and you got 120 new customers so that means you spent on average 8 dollars and 33 cents to get one new customer into your company to sign up for your subscription that is your CAC and so if you know how much each customer is going to be worth as they stay with the company then you can know ok what is a CAC that works for our business model ok so first I'm going to talk about how to calculate LTV I'll show you a really fast formula and then I'll walk you through visually the lifetime of a customer so you can see what the calculation means so I have this set up here LTV this is the customer lifetime value so you need certain assumptions to basically calculate this you need clients and let's say we have 730 clients and I'm going to put this in blue any assumption in a financial model we always put it in a dark blue then orders per client let's say on average they're ordering 1.35 and for example let's say this is like a subscription coffee company that I used in one of my other videos so you sign up and they basically send you bags of coffee every month some people order too because maybe they have four six people living in their house so they want to receive - some people order one on average it's one point three five across all our customers transactions would just be number of clients times orders per client so let's say nine eighty five and we can just remove the decimal points an average order value again this is going to need to be an assumption and so let's say on average it costs you know I don't know twenty five dollars our subscription then the gross margin percent okay so the...