Performance Metrics
Customer Acquistion Cost (CAC)
Customer Acquisition Cost (CAC)
Annual Contract Value (ACV)
Free to Paid Conversion Rate
Daily Active Users (DAU)
Monthly Active Users (MAU)
Churn Rate
Net Revenue Retention (NRR)
Usability Metrics
Time on Task
Task Completion Rate
Error Rate
Confidence Rating
Clarity of Task
Perceived Ease of Use
Sentiment Metrics
Net Promoter Score (NPS)
Customer Satisfaction (CSAT)

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Lifetime value (LTV)

Phase

Revenue

Retention

TYPE of metric

Performance

Intro

Lifetime Value of a Customer (LTV) or sometimes also referred to as Customer Lifetime Value (CLV) measures the average amount of revenue a customer generates over their entire relationship with the product or service. This metric can be used to project the long-term growth of a business. The three constants in this measurement are:

Constant margin: the ratio between how much you spend to how much you make per customer.
Constant retention: how many customers you retain over any given time period.
Discount rate: the cost of capital used today to discount future revenue from a customer (for example: the cost of running technology to provide a free tier to acquire paying customers in the future).

How it's calculated

Method 1

If a customer spends on average $40 per month and their lifetime is 6 months the LTV is ($40 * 8) = $320 LTV. For SaaS software the lifetime of a customer should hopefully be more than just one year so you’ll multiply $320 * (number of years) to get the true LTV. ARPU stands for Average Revenue Per User. ACL stands for Average Customer Lifetime.

LTV = Average Revenue Per Customer * Customer Lifetime

Method 2

Another method explicitly adds margin to the LTV. Churn is the percentage of customers that don’t return month over month to repeat a purchase.

LTV = (Average Monthly Revenue Per Customer * Gross Margin Per Customer) / Monthly Churn Rate

When it's important

To understand how your users are experiencing the paid tier of your product and service. The core levers you have to directly affect this metric are: churn, pricing, and increasing value of the product or service to improve retention.

How design and research can create impact

Retention happens when the users are intrinsically inspired to come back and repeatedly perform a core function on a regular basis because they are getting value from your product or service better than anywhere else. Design and research can do so much to improve retention by:

Identifying and organizing users into personas to personalize how they experience the product or service.
Conduct research to identify the key themes why users are churning and run experiments to reduce the rate of churn.
Conduct competitive analysis and market research to understand the right moment to convert users from free to paid tiers (find the cold to hot moment) as well as understand the customer’s appetite and expectations around pricing.
Identify the core jobs users are trying to accomplish and design better ways for them to accomplish them (usually tied to: saving time, saving or making money, looking or feeling smart and/or getting entertainment).