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Definition
Cohort LTV is the cumulative revenue or contribution per customer in one cohort, measured at fixed points after the first order, such as month 0, month 3 and month 12. It shows how the value of a group of new customers builds over time.
Cohort LTV at month N = cumulative revenue (or contribution) from the cohort up to month N / customers in the cohortExample with made-up numbers: 500 customers first ordered in March. By the end of month 0, the cohort generated 25,000 of revenue, so cohort LTV at month 0 = 25,000 / 500 = 50. By the end of month 3, cumulative revenue is 42,500, so cohort LTV at month 3 = 85. The cost to acquire one customer in that month was 60, so on a revenue basis the cohort passed its acquisition cost between month 0 and month 3.
How to use it
Build the curve with the same cohort start and the same time points for every group. Divide the cumulative amount for the cohort by the number of customers who started in it, not by the number still active. Customers who never came back still count in the divisor, so the curve shows the real value of an average new customer.
Decide whether the curve shows revenue or contribution. Revenue is easier to measure, but contribution is the number that can pay for acquisition. Read cohort LTV next to the cost to acquire one customer for the same cohort month. Compare cohorts at the same age, not at the same calendar date.
