## Understand the variables for calculating LTV.

• Duration: how long the customer is expected to pay for your solution.
• Value: how much money you receive from the customer.

## Determine which formula to use in calculating LTV, based on the intricacies of your pricing model.

The base formula is:

``````LTV = how much money you receive from the customer per month * how many months the customer is expected to pay for your solution
```However, you might have other factors to add in:

- **Discounts**: whether to include lifetime and temporary discounts in the value calculation.
- **Price changes**: how to allow for changes in your pricing over time.
- **Plan changes**: if changes in plan type durations or compositions - for example, removing monthly plans and only offering annual - should be included.

CLV can also be affected by:

- **Purchase frequency**: Increasing purchase frequency can increase CLV.
- **Average order value**: Cross-sells and upsells can increase CLV.
- **Gross margin**: Your gross margin can also affect CLV.

Every business has to decide how they want to handle each of these factors in their calculation. An example formula is:

``````

LTV = ARPU per month * average tenure in months

``````## Create a spreadsheet to calculate your LTV over time, with months as columns and a row for each of your formula metrics.

For example:

Source: provided by author

As you compare months, it's a good idea to take a holistic approach to your analysis. For example, if March is higher than April, you can cross-reference your promotional calendar, social media channels, or customer service logs to see if there was an issue in April that caused a drop.

This will help you to avoid making typing errors or calculation mistakes. For example, if your LTV formula is `LTV = ARPU per month * average tenure in months`, your spreadsheet formula for cell B4 might be:

``````

= B2*B3

``````## Analyze your LTV over time, looking for trends and patterns.