calculating lifetime value

amartino44

New member
Joined
Apr 6, 2015
Messages
13
Hello. I'm calculating lifetime value of a customer and I'm trying to understand the math.

I have first year customers: 1000
Retention rate: 50%
All retention after first: 75% to infinity

THe formula is 1+.5/(1-.75)

Why does this work?
 

stapel

Super Moderator
Staff member
Joined
Feb 4, 2004
Messages
15,943
I'm calculating lifetime value of a customer and I'm trying to understand the math.

I have first year customers: 1000
Retention rate: 50%
All retention after first: 75% to infinity

THe formula is 1+.5/(1-.75)

Why does this work?
Why does what "work"? "Work" how? To start, how did you develop this formula for the "lifetime value of a customer"? What was the reasoning, and what data, etc, went into your development?

Also, what do you mean by "Retention rate: 50%"? Does this mean that your data shows that half of your customers return within one year of their first purchase? What is the meaning of "All retention after first: 75% to infinity"?

Please be complete. Thank you! ;)
 
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