How to Calculate Customer Lifetime Value
By Clint Fontanella.
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- Product Management
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- 2026-10-10
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The 2 critical metrics being Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV).
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“On the surface, churn rate may seem like a natural proxy for changes in customer lifetimes. Let's dig into why that is not true.” Churn rate is not a meaningful metric to compute CLV: during the customer lifetime, the churn probability is not constant. Most of the time because…
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) - Or why you're likely to get an endless stream of complaining users if choosing utility pricing scheme: while accurate to the (milli-)cent, this model is frustrating for customers not ready to invest time grasping the underlying concepts.
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A seminal paper, with a stronger approach compared to the one above: the exponential distributions is replaced by a geometric model, which is better suited to discrete time intervals like monthly contracts, the former being more appropriate to continuous time process.
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