How To Calculate LTV in Freshsales | Arithmix

Calculating LTV, or lifetime value, is an important metric for any business. It helps you understand the amount of revenue a customer will generate over the course of their relationship with your company. In this article, we'll explore what LTV is and when it's valuable to calculate it. We'll also provide a step-by-step guide on how to calculate LTV in Freshsales.

What Is LTV?

LTV is a measure of the total amount of revenue a customer will generate for your business during their lifetime. This includes all purchases they make, as well as any recurring revenue they generate through subscriptions or ongoing services. By calculating LTV, you can determine the long-term value of each customer and use this information to make strategic decisions about your business.

For example, if you run a subscription-based business, knowing the LTV of your customers can help you determine how much you can afford to spend on customer acquisition. If the LTV of a customer is $500, you might be willing to spend up to $200 to acquire them, knowing that you'll make a profit over time.

When Is It Valuable To Calculate LTV?

Calculating LTV is valuable for any business that wants to understand the long-term value of its customers. It's particularly important for businesses that rely on recurring revenue or have a high customer acquisition cost.

For example, if you run a SaaS business, you might have a high customer acquisition cost but a low churn rate. In this case, knowing the LTV of your customers can help you determine how much you can afford to spend on marketing and sales to acquire new customers.

Similarly, if you run an e-commerce business, knowing the LTV of your customers can help you determine how much you can afford to spend on advertising and promotions to acquire new customers.

How to Calculate LTV in Freshsales

Calculating LTV in Freshsales is a straightforward process. Here's how to do it:

1. Calculate the average purchase value: Add up the total revenue generated from all purchases made by a customer and divide it by the number of purchases. For example, if a customer has made three purchases totaling $300, the average purchase value is $100.
2. Calculate the average purchase frequency rate: Divide the total number of purchases made by the customer by the number of months they've been a customer. For example, if a customer has made three purchases in six months, the average purchase frequency rate is 0.5.
3. Calculate the customer value: Multiply the average purchase value by the average purchase frequency rate. For example, if the average purchase value is $100 and the average purchase frequency rate is 0.5, the customer value is $50.
4. Calculate the average customer lifespan: Determine the average length of time a customer stays with your business. For example, if the average customer lifespan is two years, the total customer value is $100.
5. Calculate the LTV: Multiply the customer value by the average customer lifespan. For example, if the customer value is $100 and the average customer lifespan is two years, the LTV is $200.

By following these steps, you can calculate the LTV of your customers in Freshsales. This information can help you make strategic decisions about your business and ensure that you're maximizing the long-term value of each customer.

How Do You Calculate LTV in Freshsales

Freshsales itself isn’t naturally geared towards letting you calculate complex metrics like LTV. As an alternative, teams typically use products like Arithmix to import data from Freshsales and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like Freshsales, combine it with data from other systems, and create calculations like LTV.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating LTV in Arithmix

Calculating metrics like LTV is simple in Arithmix. Once you've created your free account, you’ll be able to import your Freshsales data, and use it to create natural language formulas for metrics like LTV.

Arithmix is designed to give you the power to build any calculations you want on top of your Freshsales data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.