Scope
How lifetime value of paid subscription metric is calculated?
Need clarification on the lifetime value of paid subscriptions (LTV).
Summary
The lifetime value of paid subscription estimated average revenue that a Subscription would generate throughout the Customer's lifetime.
LTV is calculated as the product of average recurring revenue per subscription and the average paid subscription lifetime (in months).
The reason we typically round this off is to calculate the lifetime in months and bring the average subscription lifetime metric at par with the average recurring revenue per subscription per month. We assume that each subscription has x months of a lifetime on average and can generate $y of recurring revenue per month since the Average Revenue Per Paid subscription numbers are as of month end.
The metric Lifetime Value of Paid Subscription details is given on the metric description page we have here
Solution
Subscription(LTPS), and on calculating through the formula given on the Metric Description page, You may find out that it was not matching the value.
For example, let's take the LTPS of December 2022 for us.
The formula has two components: ARPPS and Paid Subscription Lifetime, i.e., 100/Churn Rate.
So now, on checking the metric graphs present on the dashboard, the ARPPS for December 2022 is 10.20 and the churn rate is 11.53%, hence, on doing the calculation, we get LTPS as $88.46, however, the LTPS shown on the dashboard for December 2022 is $91.81.
Calculation stepwise:
LTV = [(ARPPS) x (Paid Subscription Lifetime)]
LTV = Dec 22 = 91.81$
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Paid Subscription Lifetime = [1/Avg.(paid subs churn rate)]*100
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Paid Subs Churn Rate = (No. Paid subs canceled/ Total no of paid subs at beginning of period)*100
Paid Subs Churn Rate = (33000/281967)*100 = 11.70 – Dec 2022
Values are taken from → (33000 - Dec 22 Paid sub churn) and (281967 - Nov 22 total active paid subs
Paid Subs Churn Rate = (27482/248608)*100 = 11.05 - Nov 2022
Values are taken from → (27482 - Nov 22 Paid sub churn) and (248608 - Oct 22 total active paid subs
Paid Subs Churn Rate = (22628/220191)*100 = 10.27 - Oct 2022
Values are taken from → (22628 - Oct 22 Paid sub churn) and (220191 - Sep 22 total active paid subs
Avg.(paid subs churn rate) = (Dec +Nov+Oct)/3 = (11.70+11.05+10.27)/3 = 11.00
Paid Subs Lifetime = (1/11.00)*100 = 9.09 = 9 (since we take only the whole number so the nearest whole number is 9)
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So, LTV = [(ARPPS) x (Paid Subscription Lifetime)]
ARPPS = (total MRR/ No. of Active Paid Subs)
ARPPS= 3003303.99/294399 = 10.201474835172674
LTV = 10.201474835172674*9 = 91.813273516554064 = 91.81