Category posts
Unit economics

LTV (Lifetime Value) is an important metric for decision-making in both marketing and product management. But measuring LTV is a bit tricky and you can easily make mistakes when calculating it. Moreover, even articles that have found their way to the first first page of Google search results contain mistakes when it comes to calculating LTV.

In this essay, I will discuss how to (not) calculate LTV, and how to avoid these common mistakes:

• Calculating LTV based on revenue instead of gross profit.
• Calculating LTV by using users’ Lifetime which is calculated as 1/churn or in any other way.
• Calculating LTV based on the average number of user purchases.

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ARPU and LTV are often used interchangeably. But in reality, they are two fundamentally different metrics. They are calculated in different ways. They answer different questions.

This article will discuss the following:

• How to calculate ARPU
• How ARPU differs from LTV
• How increasing ARPU can harm your business
• How decreasing ARPU can benefit your business
• Why you need to be careful about using ARPU to make product decisions

→ Test your product management and data skills with this free Growth Skills Assessment Test.

→ Learn data-driven product management in Simulator by GoPractice.

→ Learn growth and realize the maximum potential of your product in Product Growth Simulator.

→ Join our discussion on LinkedIn. New topics to talk about every week.

Discussions of unit economics sometimes get sidetracked by formulas and business jargon. But you shouldn’t need a special course just to get a handle on this critical concept. Unit economics can actually be easy and even intuitive.