Calculate Subscription Customer Lifetime Value

Business Context

StreamFlow is a video subscription product with monthly and annual plans. The CFO wants a consistent customer lifetime value (LTV) definition to evaluate acquisition efficiency and set CAC targets for the next quarter.

Metric Scenario

In the last 12 months, StreamFlow acquired 120,000 new subscribers: 90,000 monthly-plan users at $20/month and 30,000 annual-plan users at $180/year. Monthly-plan gross monthly churn averages 5%, and annual-plan renewal churn averages 30% at the end of each term. Average payment processing and support costs are $3 per active subscriber per month for monthly users and $24 per active subscriber per year for annual users. Refunds and failed payments reduce recognized revenue by 4% overall. Finance currently reports average revenue per user (ARPU), but growth leaders want a forward-looking LTV metric by acquisition channel and plan type.

Requirements

1. Define customer lifetime value precisely for this subscription business, including whether you use revenue LTV or contribution-margin LTV.
2. Show how you would calculate LTV for monthly and annual subscribers separately using the data above.
3. State the assumptions behind your approach, including churn stability, discounting, and treatment of refunds.
4. Explain how you would combine plan-level LTV into an overall company LTV.
5. Identify the main limitations of using a simple average-based LTV and when you would switch to cohort-based or predictive LTV.

Data Available

• subscriptions: subscriber_id, plan_type, start_date, renewal_date, cancel_date, acquisition_channel
• billing_transactions: subscriber_id, charge_date, amount, refund_amount, payment_status
• subscriber_costs: subscriber_id, month, support_cost, payment_processing_cost
• marketing_attribution: subscriber_id, acquisition_channel, campaign_id, CAC
• subscriber_activity: subscriber_id, watch_hours, active_days, device_type