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• Formula: CTR = (Number of Clicks / Number of Impressions) x 100

• Description: Measures the percentage of people who click on a link or ad after seeing it.

• Usage: Key for assessing the effectiveness of ad copy, email subject lines, and other calls to action.

• Example: If your ad is shown 5,000 times (impressions) and receives 100 clicks, your CTR is (100 / 5,000) x 100 = 2%.

• Formula: Conversion Rate = (Number of Conversions / Total Number of Visitors) x 100

• Description: Measures the percentage of visitors who complete a desired action (e.g., purchase, sign-up, form submission).

• Usage: Essential for evaluating website and landing page effectiveness.

• Example: If 100 out of 1,000 website visitors make a purchase, your conversion rate is (100 / 1,000) x 100 = 10%.

• Formula: ROI = ((Net Profit - Cost of Investment) / Cost of Investment) x 100

• Description: Measures the profitability of a marketing investment relative to its cost. It shows the return you get for every dollar spent.

• Usage: It's the most fundamental measure of marketing success.

• Example: If you spend $10,000 on a marketing campaign and generate $20,000 in net profit, your ROI is (($20,000 - $10,000) / $10,000) x 100 = 100%. text goes here

• Formula: ROAS = (Revenue Generated from Advertising / Cost of Advertising) x 100

• Description: Measures the revenue generated for every dollar spent on advertising.

• Usage: Essential for evaluating the efficiency of paid advertising campaigns.

• Example: If you spend $2,000 on a Google Ads campaign and generate $8,000 in revenue, your ROAS is ($8,000 / $2,000) x 100 = 400%.

• Formula: CAC = Total Marketing and Sales Expenses / Number of New Customers Acquired

• Description: Calculates the average cost of acquiring a new customer.

• Usage: Helps assess the cost-effectiveness of customer acquisition strategies.

• Example: If you spend $5,000 on marketing and sales in a month and acquire 50 new customers, your CAC is $5,000 / 50 = $100.

There are a few different formulas for calculating Customer Lifetime Value (CLTV or LTV), ranging in complexity. Here's a breakdown of the most common ones, from simple to more advanced:

1. Simple Historical LTV:

• Formula: Customer Value * Average Customer Lifespan

• Where:

  • Customer Value = Average Purchase Value * Average Number of Purchases

  • Average Customer Lifespan = The average length of time a customer continues to purchase from your company.

• Pros: Easy to calculate with readily available data.

• Cons: Doesn't account for future value, changing purchase patterns, or the time value of money. It's purely based on past behavior.

• Example:

  • Average Purchase Value = $50

  • Average Number of Purchases per Year = 4

  • Average Customer Lifespan = 3 years

  • Customer Value = $50 * 4 = $200

  • LTV = $200 * 3 = $600

2. Basic Predictive LTV:

• Formula: (Average Purchase Value Average Number of Purchases per Year) * Average Customer Lifespan

• Pros: Slightly more forward-looking than the Simple Historical LTV.

• Cons: Still doesn't account for discounts, retention rate, or time value of money.

• Example: (Same values as above)

  • Average Purchase Value = $50

  • Average Number of Purchases per Year = 4

  • Average Customer Lifespan = 3 years

  • LTV = ($50 4) 3 = $600

3. Traditional LTV Formula (More Common):

Formula: (Average Purchase Value Purchase Frequency Gross Margin) / Churn Rate

Where:

• Average Purchase Value: The average amount a customer spends per purchase.

• Purchase Frequency: The average number of purchases a customer makes in a year.

• Gross Margin: The percentage of revenue remaining after deducting the cost of goods sold (COGS). (Revenue - COGS)/Revenue

• Churn Rate: The percentage of customers who stop doing business with your company in a given period (usually a year).

• Pros: Accounts for gross margin and churn rate, making it more accurate than the simple formulas.

• Cons: Doesn't consider the time value of money or variations in customer value over time.

• Example:

  • Average Purchase Value = $100

  • Purchase Frequency = 2

  • Gross Margin = 50% (0.50)

  • Churn Rate = 20% (0.20)

  • LTV = ($100 2 0.50) / 0.20 = $500

4. Discounted Cash Flow LTV (Most Accurate, Most Complex):

• Formula: Σ [ (Cash Flowt / (1 + Discount Rate)t) ] from t=1 to n

Where:

• Cash Flowt: The expected net cash flow from the customer in period t (typically a year).

• Discount Rate: The rate used to discount future cash flows to their present value (reflecting the time value of money and risk).

• t: The time period (e.g., year 1, year 2, etc.).

• n: The estimated number of years the customer will remain a customer.

• Pros: Accounts for the time value of money, which is crucial for long-term projections. Also allows for varying cash flows over time.

• Cons: Requires more data and assumptions, making it more complex to calculate.

• Example: (Simplified)

  • Year 1 Cash Flow = $200

  • Year 2 Cash Flow = $250

  • Year 3 Cash Flow = $300

  • Discount Rate = 10% (0.10)

  • LTV = ($200 / (1 + 0.10)^1) + ($250 / (1 + 0.10)^2) + ($300 / (1 + 0.10)^3)

  • LTV = $181.82 + $206.61 + $225.39 = $613.82

Choosing the Right Formula:

• Start Simple: If you're new to LTV calculations, start with one of the simpler formulas.

• Consider Data Availability: Choose a formula that uses data you already have or can easily collect.

• Align with Business Needs: If you need a highly accurate LTV for long-term strategic planning, invest in the data and resources required for the Discounted Cash Flow method.

No matter which formula you use, remember that LTV is an estimate, not a guarantee. The key is to use it as a tool to guide your marketing decisions and improve your customer relationships.

• What it is: ARR is a key metric, especially for subscription-based businesses (SaaS, etc.), that represents the annualized value of recurring revenue normalized to a one-year period.

• Formula: ARR = (Total Recurring Revenue / Total Months) 12 or ARR = Total Monthly Recurring Revenue (MRR) 12

• Example: If a company has $50,000 in MRR, then ARR = $50,000 * 12 = $600,000.

• Usage: It provides a clear picture of the company's predictable revenue stream.

• What it is: The ARR generated from new customers acquired during a specific period (e.g., month, quarter, year).

• Formula: New ARR = (New Customers in Period * Average ARR per Customer)

• Example: If a company acquires 100 new customers in a month and the average ARR per customer is $5,000, then New ARR = 100 * $5,000 = $500,000.

  Usage: Shows how effectively the company is acquiring new revenue streams.

• What it is: The ARR lost due to customer churn (cancellations) during a specific period.

• Formula: Churned ARR = (Number of Customers Churned * Average ARR per Customer)

• Example: If 20 customers churn in a month and the average ARR per customer is $5,000, then Churned ARR = 20 * $5,000 = $100,000.

• Usage: Highlights the revenue lost due to customer churn and the need for retention efforts.

• What it is: The overall increase or decrease in ARR after accounting for both new and churned ARR.

• Formula: Net New ARR = New ARR - Churned ARR

• Example: If a company has New ARR of $500,000 and Churned ARR of $100,000, then Net New ARR = $500,000 - $100,000 = $400,000.

• Usage: Provides a comprehensive view of the company's overall growth trajectory.

• What it is: The percentage change in ARR over a specific period.

• Formula: ARR Growth Rate = ((Current ARR - Previous ARR) / Previous ARR) * 100

• Example: If a company's ARR increased from $500,000 to $600,000 in a year, then ARR Growth Rate = (($600,000 - $500,000) / $500,000) * 100 = 20%.

• Usage: Shows how quickly the company is growing its recurring revenue base.

• What it is: The percentage of customers who stop doing business with the company over a given period.

• Formula: Customer Churn Rate = (Number of Customers Lost During Period / Number of Customers at Start of Period) * 100

• Example: If a company starts the year with 500 customers and loses 50 customers during the year, then Customer Churn Rate = (50 / 500) * 100 = 10%.

• Usage: Indicates customer satisfaction and the effectiveness of retention efforts.

• What it is: Compares the total value a customer brings to the company to the cost of acquiring that customer.

• Formula: LTV:CAC Ratio = Customer Lifetime Value (LTV) / Customer Acquisition Cost (CAC)

• Example: If a company's LTV is $1,000 and its CAC is $200, then LTV:CAC Ratio = $1,000 / $200 = 5:1.

• Usage: Provides insights into the long-term profitability of customer acquisition efforts. A healthy ratio is generally considered to be 3:1 or higher.

• What it is: Measures the percentage of recurring revenue retained from existing customers, including upgrades, downgrades, and churn.

• Formula: NRR = ((ARR at End of Period - Churned ARR) / ARR at Start of Period) * 100

• Usage: NRR > 100% indicates growth from the existing customer base.