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Methodology

Customer Lifetime Value Planner methodology

Estimate contribution-based customer value over an explicit bounded retention horizon.
Duc Nguyen X.By Duc Nguyen X.ยท Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Retention Weight
retentionWeight = ฮฃ retentionRate^t for t=0..Hโˆ’1

Where

retentionRate
Retention rate per period (decimal rate)Source: Business record
retentionWeight
Retention Weight (ratio)Source: Calculated output
retentionRate
Retention-rate assumption (decimal rate)Source: User assumption
t
Period index (whole periods)Source: Calculated output
H
Finite planning horizon (whole periods)Source: User decision
Bounded Contribution Ltv
boundedContributionLtv = contribution per period ร— retention weight

Where

retentionWeight
Retention Weight (ratio)Source: Calculated output
boundedContributionLtv
Bounded Contribution Ltv (money)Source: Calculated output
contributionPerPeriod
Contribution per customer per period (currency units per period)Source: Business record
Terminal Retained Share
terminalRetainedShare = retentionRate^(Hโˆ’1)

Where

retentionRate
Retention rate per period (decimal rate)Source: Business record
terminalRetainedShare
Terminal Retained Share (percent)Source: Calculated output
retentionRate
Retention-rate assumption (decimal rate)Source: User assumption
H
Finite planning horizon (whole periods)Source: User decision
Horizon Periods
horizonPeriods = selected finite horizon

Where

horizonPeriods
Horizon periods (whole or operational units)Source: Business record
horizonPeriods
Horizon Periods (periods)Source: Calculated output
Segment bounded LTV
segmentBoundedLtv = contributionPerPeriod ร— ฮฃ retentionRate^t for t=0..Hโˆ’1

Where

retentionRate
Retention rate per period (decimal rate)Source: Business record
boundedContributionLtv
Bounded Contribution Ltv (money)Source: Calculated output
contributionPerPeriod
Contribution per customer per period (currency units per period)Source: Business record
retentionRate
Retention-rate assumption (decimal rate)Source: User assumption
t
Period index (whole periods)Source: Calculated output
H
Finite planning horizon (whole periods)Source: User decision
segmentBoundedLtv
Segment bounded LTV (currency units)Source: Calculated output
Segment net LTV
segmentNetLtv = segmentBoundedLtv โˆ’ segmentAcquisitionCost

Where

segmentAcquisitionCost
Segment acquisition cost (currency units per customer)Source: Business record
segmentBoundedLtv
Segment bounded LTV (currency units)Source: Calculated output
segmentNetLtv
Segment net LTV (currency units)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

Worked values below come from the same registered engine and visible default assumptions.

Calculation and outputs

Example

Worked values below come from the same registered engine and visible default assumptions.

Retention Weight
2.95
Bounded Contribution Ltv
147.60 currency units
Terminal Retained Share
51.2%
Horizon Periods
4

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

Bounded contribution LTV values the entered contribution and retention sequence only across the selected finite horizon.

3. Validation and boundary checks

  • All inputs must be finite and non-negative unless the formula explicitly permits a negative calculated profit or gap.
  • Rates must remain between 0% and 100%; horizons and declared counts use the exact whole-number boundaries shown by the inputs.
  • Zero denominators return an explicit unreachable state rather than Infinity, NaN or a numeric sentinel.
  • Compared records must use one consistent attribution, contribution, period and currency basis.

4. Assumptions and source classification

  • Retention, conversion, attribution and incrementality are user assumptions rather than causal claims.
  • Customer value is contribution-based and bounded to the selected finite horizon.
  • No provider rate, market benchmark, country rule or policy constant is embedded.
  • The embedded segment comparison evaluates exactly two numeric rows with the same period unit and bounded horizon; local labels are not persisted or shared.

This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The workflow does not forecast demand, retention, conversion or campaign performance.
  • It does not replace financial, accounting, tax or legal advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.

Related reading

Guides to interpret the decision and its assumptions.

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