{"id":2742,"date":"2020-06-30T18:30:29","date_gmt":"2020-06-30T09:30:29","guid":{"rendered":"https:\/\/www.hideandseek.co.jp\/?p=2742"},"modified":"2025-06-18T14:11:04","modified_gmt":"2025-06-18T05:11:04","slug":"a-must-read-for-e-commerce-businesses-from-how-to-calculate-ltv-for-subscription-services","status":"publish","type":"post","link":"http:\/\/www.hideandseek.co.jp\/en\/archives\/2742","title":{"rendered":"How Is LTV Calculated for Subscription-Based Direct-to-Consumer (D2C) Businesses? We Also Share 5 Ways to Maximize LTV"},"content":{"rendered":"

I\u2019m sure there are many people who aren\u2019t quite sure how to calculate LTV, aren\u2019t there?<\/p>\n

 <\/p>\n

And that makes sense, since the way LTV is calculated varies depending on the sales approach and the target audience.<\/p>\n

 <\/p>\n

In this article, we\u2019ll focus specifically on \u201csubscription-based e-commerce (single-item repeat purchases)\u201d in the e-commerce industry, covering everything from how to calculate LTV to strategies for increasing LTV in subscription-based e-commerce.<\/p>\n

What is LTV (Lifetime Value)?<\/h2>\n

If you're new to the e-commerce industry, you need to thoroughly understand what LTV is before learning how to calculate it.<\/p>\n

 <\/p>\n

If you're absolutely sure you've got this covered, please skip ahead to \"How to Calculate LTV in E-commerce\" in the table of contents.<\/p>\n

The True Meaning of LTV<\/h3>\n

\"\"<\/p>\n

 <\/p>\n

\"LTV\" is an acronym for \"Lifetime Value,\" and\"Customer Lifetime Value\"<\/strong><\/span>It translates as...<\/p>\n

 <\/p>\n

To put it simply,\"The total amount a customer has paid for a specific product or service over their lifetime\"<\/strong>That's what it means.<\/p>\n

If people like a product, they'll buy it more than once.<\/h3>\n

As consumers, we often find ourselves buying the same products over and over again, don't we?<\/p>\n

 <\/p>\n

For example, you might like the scent of a certain cosmetic product, or you might buy something because it suits your skin even though it\u2019s a little more expensive than other products\u2014there are various reasons for making a purchase, butI often buy the same product again<\/strong>That's right.<\/p>\n

 <\/p>\n

However,If a customer switches to a competitor's product, revenue from that customer stops at that point.<\/strong><\/span><\/p>\n

So, the key to increasing sales is ensuring that customers don't leave and encouraging them to make repeat purchases, right?<\/p>\n

 <\/p>\n

That\u2019s why LTV is essential as a metric for measuring whether repeat purchase rates are increasing and sales are rising.<\/p>\n

Aren't you going to set a fixed period?<\/h3>\n

As mentioned above, LTV refers to \u201cthe total amount a customer has paid over their lifetime,\u201d butGenerally, we tend to set a specific time frame.<\/strong>\u3002<\/p>\n

 <\/p>\n

Depending on how products or services are sold, the LTV period can vary\u2014ranging from one year to two years, for example\u2014but,Generally speaking,\"One Year\"<\/span>is calculated as follows<\/strong>\u3002<\/p>\n

 <\/p>\n

The reason for setting a timeframe is that it allows you to create a business plan\u2014for example, \u201cThis project will reach the break-even point in its second year, and revenue over the two-year period will be X\u201d\u2014and to calculate the necessary advertising costs.<\/p>\n

How to Calculate LTV in E-commerce<\/h2>\n

The Basic Formula for Calculating LTV<\/h3>\n

Even if you search for \u201cLTV calculation method,\u201d all you get is\"LTV = Average Order Value \u00d7 Average Purchase Frequency \u00d7 Average Purchase Period\"<\/strong>I think there are a lot of equations like this.<\/p>\n

 <\/p>\n

To be honest, I bet there are quite a few people who find it hard to calculate and don\u2019t really understand it, right?<\/p>\n

So, here is a basic formula that generally applies to almost every industry.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

 <\/p>\n

This is the simplest formula for calculating the LTV per customer.<\/p>\n

 <\/p>\n

Since almost every business calculates its monthly and annual sales and the number of customers, it\u2019s easy to plug those values into the formula above, isn\u2019t it?<\/p>\n

Two Methods for Calculating LTV in Subscription-Based E-Commerce<\/h3>\n

However,In the case of subscription-based sales (single-item repeat orders), things get a little more complicated.<\/strong><\/p>\n

 <\/p>\n

This is because, with subscription services,The price for the first purchase is often different from the price for subsequent purchases.<\/strong><\/span>That's why.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

And thenWe gain new customers every month.<\/strong><\/p>\n

 <\/p>\n

\"\"<\/p>\n

 <\/p>\n

If you calculate LTV here using \u201ctotal sales for the year \u00f7 number of customers,\u201d the result will inevitably be lower because that figure includes new customers who started making purchases between the second and twelfth months, as well as their sales.<\/p>\n

 <\/p>\n

In other wordsRevenue from new customers in months 2 through 12 is,Do not include this in the calculation.<\/span><\/strong><\/p>\n

 <\/p>\n

\"\"<\/p>\n

 <\/p>\n

(Later, I\u2019ll also show you how much lower the LTV becomes when the calculation mistakenly includes new customers from months 2 through 12.)<\/p>\n

 <\/p>\n

In conclusion, here\u2019s how to calculate the \u201cLTV per product\u201d for recurring subscription services (single-item repeat purchases).<\/p>\n

 <\/p>\n

\"LTV = (Initial unit price \u00d7 Number of purchases in the first month + Unit price for purchases 2\u2013n \u00d7 Number of customers who made purchases 2\u2013n times out of those who purchased in the first month) \u00f7 Number of customers who purchased in the first month\"<\/strong><\/p>\n

 <\/p>\n

(For the \"2\u2013n times\" part, please substitute the number of product shipments for the period you wish to calculate.)<\/p>\n

 <\/p>\n

Since we're calculating for one year this time, we'll set n to 12.<\/p>\n

*Assumes monthly shipping.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

 <\/p>\n

In this case, the \u201cnumber of remaining cases\u201d is calculated based on the repeat rate.<\/p>\n

 <\/p>\n

If you don\u2019t have the original data\u2014for example, when estimating the LTV of a new product\u2014use the repeat purchase rates of existing or similar products as a reference.<\/p>\n

 <\/p>\n

As an example, let's calculate the LTV under the following conditions.<\/p>\n

 <\/p>\n

\u30fb1,980 yen for the first session; 3,960 yen for the second session and beyond
\n\u30fbIndustry-average repeat customer rate: 75%
\n\u30fbAim to acquire 1,500 new customers every month
\n\u30fbShip one item per month<\/p>\n

 <\/p>\n

\"\"<\/p>\n

 <\/p>\n

Applying this formula,<\/p>\n

\"\"<\/p>\n

 <\/p>\n

I was asked to calculate the one-year LTV for customers who made their first purchase in January.<\/p>\n

 <\/p>\n

Next, I\u2019ll show you what happens if you mistakenly calculate LTV using the formula \u201cLTV = Total Revenue \u00f7 Number of Customers.\u201d<\/p>\n

 <\/p>\n

In this case, since the LTV includes new customers acquired between the 2nd and 12th months, it is quite low.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

The maximum CPA can be calculated based on LTV<\/h3>\n

In addition, based on the calculated LTV,Marginal CPA<\/strong>You can request it.<\/p>\n

 <\/p>\n

What Is Marginal CPA?\"The maximum amount you can spend to acquire new customers for recurring products\"<\/strong>So, if we go over this amount, we'll be in the red.<\/p>\n

 <\/p>\n

The marginal CPA is calculated using the following formula.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

 <\/p>\n

For example, assuming a gross profit margin of 40%, when the LTV is 24,000 yen,
\n24,000 yen \u00d7 0.40 = 9,600 yen (marginal CPA).<\/p>\n

5 Strategies for Increasing LTV in Subscription-Based E-Commerce<\/h2>\n

As mentioned above, here is the formula for LTV in recurring subscription sales (single-item repeat sales).<\/p>\n

 <\/p>\n

\"LTV = (Initial unit price \u00d7 Number of purchases in the first month + Unit price for purchases 2\u2013n \u00d7 Number of customers who made purchases 2\u2013n times out of those who purchased in the first month) \u00f7 Number of customers who purchased in the first month\"<\/strong><\/p>\n

 <\/p>\n

In other words, by optimizing the values in this formula, you can increase LTV.<\/p>\n

Increase the unit price of products<\/h3>\n

First, the first measure is\"Raise the unit price\"<\/strong>That is the point.<\/p>\n

 <\/p>\n

Since the unit price for the first purchase often differs from that for subsequent purchases in subscription-based products, you should carefully decide which price to raise\u2014taking into account the pros and cons in terms of customer acquisition.<\/p>\n

Increase the repeat rate<\/h3>\n

Second is\"Increasing the Repeat Purchase Rate\"<\/strong>That is the point.<\/p>\n

 <\/p>\n

If the repeat rate increases, the number of retained customers will increase.<\/p>\n

 <\/p>\n

From a mathematical perspective, while the number of first-month purchasers\u2014the denominator\u2014remains the same, the numerator\u2014\"the number of first-month purchasers who remain active through their 2nd to nth purchases\"\u2014increases, causing the LTV to rise.<\/p>\n

 <\/p>\n

As for ways to increase the repeat purchase rate, there are various strategies to consider.<\/p>\n

 <\/p>\n

For exampleIncluding next month's coupon in the package to boost sales, or<\/strong>\u3001Sending automated email sequences to maximize customer satisfaction, or<\/strong>This is also one of the measures.<\/p>\n

Increase the number of items shipped<\/h3>\n

The third one is\"Increase the Number of Shipments\"<\/strong>That is the point.<\/p>\n

 <\/p>\n

For example, let's say we ship two items every two months starting with the second shipment.<\/p>\n

 <\/p>\n

Therefore, the number of units shipped in the second month is \u201cNumber of customers in the first month (= Number of units shipped in the first month) \u00d7 Repeat purchase rate \u00d7 2.\u201d<\/p>\n

 <\/p>\n

If we calculate and add the figures for the 4th and 6th months in the same way, we find that\u2014even though the repeat purchase rate is the same as that of first-month buyers\u2014the number of first-month buyers who remain active through their 2nd to nth purchases is higher than when shipping one item per month.<\/p>\n

Reduce the cost of acquiring new customers<\/h3>\n

\"LTV = Average Order Value \u00d7 Average Purchase Frequency \u00d7 Average Purchase Period \u2013 (Customer Acquisition Cost + Customer Retention Cost)\"<\/strong><\/p>\n

 <\/p>\n

This formula is also commonly used to calculate LTV.<\/p>\n

 <\/p>\n

Based on this equation,\"Reducing the Cost of Acquiring New Customers\"<\/strong>This is also one of the strategies for increasing LTV.<\/p>\n

 <\/p>\n

If you can improve ad quality and lower CPA, LTV will increase.<\/p>\n

Reduce customer retention costs<\/h3>\n

Similarly\"Reducing Customer Retention Costs\"<\/strong>This is also one of the measures.<\/p>\n

 <\/p>\n

For example, the third point I mentioned\u2014\"increasing the number of shipments\"\u2014also helps reduce customer retention costs.<\/p>\n

 <\/p>\n

That's because we ship two items at a time, which reduces shipping costs.<\/p>\n

 <\/p>\n

In addition, cutting \u201ccall center costs\u201d and \u201cSG&A expenses\u201d will likely increase LTV.<\/p>\n

 <\/p>\n

However, this\"Reducing customer retention costs\" isA double-edged sword<\/span>...as well.<\/strong><\/p>\n

 <\/p>\n

For example, \u201cincreasing the number of items shipped\u201d might dampen prospective customers\u2019 desire to buy, leading to a decline in the number of sales.<\/p>\n

 <\/p>\n

Similarly, \u201ccutting call center costs and SG&A expenses\u201d could lead to a decline in service quality, which in turn could lower customer satisfaction and ultimately result in a drop in repeat business rates.<\/p>\n

 <\/p>\n

As such,While \u201creducing customer retention costs\u201d is important, it may not lead to increased sales.<\/strong><\/p>\n

 <\/p>\n

Ultimately, the key to increasing LTV isOne means of achieving the ultimate goal of \u201cprofit maximization\u201d<\/strong><\/span>Let's not forget that.<\/p>\n

Summary<\/h2>\n

In this article, we provided a detailed explanation of how to calculate and increase LTV for subscription-based e-commerce (single-item repeat purchases).<\/p>\n

 <\/p>\n

I hope you now understand that the method for calculating LTV varies depending on the \u201csales approach\u201d and the \u201ctype of LTV you\u2019re looking for.\u201d<\/p>\n

 <\/p>\n

However, as long as you keep the original formula\u2014\"LTV = Total Revenue \u00f7 Number of Customers\"\u2014in mind, you should be able to derive the LTV formula yourself, regardless of the sales method you use.<\/p>\n

 <\/p>\n

We were also able to figure out how to increase LTV based on the formula, weren't we?<\/p>\n

 <\/p>\n

To identify areas for improvement in your subscription service, try calculating the LTV of your products.<\/p>","protected":false},"excerpt":{"rendered":"

I\u2019m sure there are many people who aren\u2019t quite sure how to calculate LTV, aren\u2019t there?<\/p>\n

And that makes sense, since the way LTV is calculated varies depending on the sales approach and the target audience.<\/p>\n

In this article, we\u2019ll focus specifically on \u201csubscription-based e-commerce (single-item repeat purchases)\u201d in the e-commerce industry, covering everything from how to calculate LTV to strategies for increasing LTV in subscription-based e-commerce.<\/p>","protected":false},"author":9,"featured_media":5108,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[4],"tags":[],"class_list":["post-2742","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ad-operations"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\n","aioseo_head_json":{"title":"How Is LTV Calculated for Recurring E-commerce (D2C)? We Also Introduce 5 Methods for Maximizing LTV | Hide&Seek Co., Ltd. | Hide&Seek","description":"I\u2019m sure many of you are wondering, \u201cI\u2019m not quite sure how to calculate LTV.\u201d And that\u2019s no surprise\u2014after all, the method for calculating LTV varies depending on your sales approach and the specific metrics you\u2019re tracking. So in this article, we\u2019ll focus specifically on \u201csubscription-based e-commerce (single-item repeat purchases)\u201d in the online retail industry, covering everything from how to calculate LTV to strategies for increasing it in this context.","canonical_url":"http:\/\/www.hideandseek.co.jp\/en\/archives\/2742","robots":"max-image-preview:large","keywords":"","webmasterTools":{"miscellaneous":""},"schema":null,"og:locale":"en_US","og:site_name":"\u682a\u5f0f\u4f1a\u793eHide&Seek\uff5c\u30cf\u30a4\u30c9\u30a2\u30f3\u30c9\u30b7\u30fc\u30af 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