Smart Hack to Predict Customer Lifetime Value For Any Business

Subscription businesses must know customer lifetime value (LTV). LTV tells you how much money a customer will spend with you. There is a smart hack to see this value using pricing.

Aviral Bhatnagar discovered an easy method to find LTV: “the ratio of the annual cost of a subscription divided by what they are charging per month will tell you how many months people are staying on average.”

Usually, an annual plan costs less than paying monthly for a year. If the annual price is 6x the monthly price, the business expects customers to stay 6 months. If you pay for 6 months, you become profitable for them.

YouTube: The Annual Secret

YouTube offers monthly and annual plans for their premium service.

The yearly cost in the US is $139.99 and the monthly cost is $13.99.

Dividing the annual price by the monthly price ($139.99 / $13.99) gives us 10.

The number "10" shows how many months a subscriber will likely stay. YouTube expects a monthly customer to remain for 10 months.

A number close to 12 shows stronger customer loyalty and longer subscription periods.

Netflix: The LTV Mystery

Netflix in the US only offers a monthly plan, irrespective of usage.

However, in India, Netflix provides a yearly plan for their mobile subscription.

The monthly plan is Rs. 149 and the yearly plan is Rs 1,788.

Dividing yearly by monthly (Rs.1,788 / Rs.149) gives us 12.

This suggests Netflix has very low churn and expects a 12-month subscription from those on that plan. This means it has a very sticky product and very high retention.

Netflix has a 12-month LTV, while YouTube has a 10-month LTV per customer.

Businesses with good retention do not provide annual discounts.

LTV: A Business Tool

You can use this trick for any business, like a SaaS product or an e-commerce store.

Before starting any business, check the LTV.

If the LTV is low, they have high churn.

For example, look at B2C apps, like iScanner, where the yearly pricing is 1x monthly or 4x weekly, this means their product is not sticky.

Very healthy retention businesses do not need to offer significant annual discounts.

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Rabbit Holes

1. How to Add $1m in SaaS Revenue Fast, Go Viral, and Prepare for 2025 by Nathan Latka

2. Dating apps' recipes for success: how the top apps retain & monetize their users by App Fuel

3. Please stop torturing your model - A case against context spam by /r/LocalLLaMA

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