An overview of the data definition of lifetime value in Rinsed analytics
Lifetime Value (LTV) is a measure of the average expected revenue from a member over time. LTV is a key metric for tracking the health of subscription businesses, in and out of the car wash industry, and used in profit forecasting, marketing ROI and budgeting, and cross cohort-level analyses. Understanding the value you can expect from your members across their membership lifetime allows you to plan ahead!
There are many different ways to calculate LTV, and different considerations depending on the use case for the business. Rinsed defines LTV in a straightforward way:
Rinsed LTV = The average expected cumulative revenue from a subscriber, [X] months after acquisition. This is calculated using the historical averages from the data we observe for each of our customers. Since this number is an average across all memberships, it does account for churn. The Rinsed definition of LTV does not take into account the cost of acquisition (CAC) or variable margin on each customer, which is important information to layer on to get a full LTV view.
First, let’s take a look at our overall LTV chart on the subscriber tab (though the following applies to LTV by site and plan as well):
The chart shows the average dollars you should expect to receive for each member that signs up, where the month they were acquired is denoted as month 0.
Specifically, this chart says that the average member spent $70 in their first 3 months (months 0, 1, and 2) after signing up for a membership, and had spent $209 after 12 months. This chart does account for churn, so the members that do stick around for a long time will give you significantly more than the averages shown here.
Another way to think about LTV is that if you have a 12 month LTV of $200 and just signed up 1,000 new members, you should expect $200 * 1,000 = $200,000 of membership revenue from that group in their first year. Some will have higher LTV because they never churn, and some will churn after their first month so their LTV will be lower. But on average, you would expect that group of customers to spend $200 in their first 12 months after being acquired.
One more way to think about it is an example of one cohort where you acquire 10 total members to start.
Month 0 – you sign up 10 customers at $30 / month = $300 revenue for that month.
Month 1 – 2 members churn so that leaves 8 customers at $30/month = $240 revenue for that month, and $540 cumulative revenue for the cohort.
Month 2 – 1 more member churns so that leaves 7 customers at $30/month = $210 revenue for that month, and $750 cumulative revenue for the cohort.
Since after 2 months you’ve gotten $750 in cumulative revenue from this cohort, and the cohort contained 10 members to start, month 2 LTV is $75.
Shown visually:
Rinsed also shows charts on LTV by membership location:
As well as LTV by membership plan type (plan bucket):
Please note that Rinsed maintains cohort size minimums for each plan to be included in the LTV by Plan chart, in order to ensure small datasets do not overly skew the results. This may lead to very rare plans not appearing on this chart. If you have any questions, please reach out to your CSM.
FAQs:
Q: How can I increase my LTV?
A: Ultimately, member LTV is a function of member retention rates and the pricing of your plans. Of course, there will be a trade-off between higher prices and lower retention rates, and these considerations are often wash- and geography-specific. Increasing retention rates is a great way to increase LTV, and retention can be tracked in Rinsed, on the “Subscribers” tab. Rinsed offers multiple ways to decrease retention, including our Dunning feature to reduce credit card churn, our Downsells feature to reduce voluntary churn, drip campaigns, voucher promotions, and winbacks that are all configurable to your setup. Tracking LTV over the various cohorts that you acquire will help ensure your marketing and CRM strategies are working!
Q: What is an average LTV, or what should I be aiming for in terms of LTV?
A: LTV can vary widely among different washes, as different prices points, geographies, local economies, and offerings (e.g Graphene, Full Service, Family Plans) may all affect average spend and retention. Rinsed typically focuses on 36 month LTV (how much revenue will the average member be responsible for in the first 36 months after acquisition, accounting for churn), and the median 36 month LTV across our customers is $430, with the 25th percentile at $350 over 36 months and the 75th percentile at $500. Of course, it’s important to think about the fixed and variable costs per member as well, since this ultimately drives profitability.