The User Lifetime Value is defined as follows:
User lifetime = 1 / Churn
Now, the churn rate can be reported for sign-ups or for on-boarded users. Most companies report user churns for sign-ups.
But let me show you how these 2 figures influence your results and your perception on how your business is doing.
For the sake of the example, let’s assume that you have 1000 sign-ups on day #1 and after 4 months 340 active users.
If you use the number of sign-ups for the calculus, you will get a churn rate of 16.5% and a user lifetime of 6 months.
Now let’s look at the same example from an on-boarded user’s perspective.
Stats show that 600 users churn the very first day. That means that over the course of the following 4 months, for the 400 remaining users the average churn rate / month will be 5% and the user lifetime of 20 months.
That means the on-boarded user life time is at least 1.6 years - versus 6 months when reported to all signups. Quite a difference!
This is an oversimplified example, since it does not include all the variables when calculating churn, such as:
- Previous users
- Reactivated users
Still, it helps us make our point: your marketing campaigns and customer acquisition efforts can determine significant fluctuations in the number of created accounts. Many times, the fluctuations are not found when it comes to the number of on-boarded users.
Here is a random example from one of our customers: