What is Subscriber Lifetime Value?
Subscriber Lifetime Value is the amount of revenue a subscriber will generate over the course of their time as a subscriber, net of costs. Understanding this is crucial for subscription businesses when planning how much to spend on marketing and retention, and for understanding the pay off of different subscription packages.
Why would you need it?
Subscriber Lifetime Value Modelling enables you to quickly get an understanding of how much new acquisitions are worth. We can use these values to calculate return on advertising spend and as inputs in other models (e.g. econometric models). We can also combine with customer segmentation models to understand how value compares across different customer clusters. Fundamentally, we can use it to identify and retain the highest value customers.
These models answer questions like ‘how much should we charge for annual subscriptions vs. monthly subscriptions?’ or ‘how has switching to a customer service chatbox affected retention?’.
What data is required?
We can build powerful statistical models with quite simple data. At the most basic level all we need are subscription durations and the latest status for each subscriber. Ideally we would also have other features describing the subscriber and their subscription.
We would also need information about costs (acquisition, servicing and retention) and the subscription price.
How does it work?
We estimate survival curves, which tell us the probability a customer is still active at different points in time. We combine these with price and cost values to calculate lifetime value. We can build models that estimate survival curves under different conditions and for subscribers with different characteristics.
Where have we used it?
We’ve used Subscriber Lifetime Value Modelling in the publishing and online retail sectors.