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Estimating Customer Lifetime Value Via Cohort Retention

CLV or LTV as they call it

Figure 1: Sample scale for all the colours in this post — from yellow (~ 0–15%) to darker green (~90–100%)
Figure 2: Retention Matrix; y-axis, acquisition period (month), x-axis, tenure, or the time passed after the acquisition; for colour, see Figure 1.
Figure 3: The what do we need to estimate?
Figure 4: Marginal Retention, describes how many customers that paid for the service in a previous period “migrated” into the next one, tends to increase as the tenure increases, and ideally approaches 100%
Figure 5: Extrapolate marginal retention top-bottom, element by element
Figure 6: Marginal retention extrapolated to fill the full matrix
Figure 7: Combine extrapolated marginal retention and cohort retention to fill the cohort retention matrix



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