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!