Customer 'Lifetime Value' Is The Wrong Metric For Success

Uriel Maslansky is the CEO and Co-Founder of Atly.

Customer "lifetime value" (LTV) is a popular metric in our competitive consumer landscape. It offers businesses a forecast of total revenue from each customer, accounting for every potential purchase, subscription or any other interaction.

When used wisely, LTV can be a useful aspect of how companies self-assess, indicating which customers are more and less profitable to acquire. But LTV is imperfect and can lead companies astray.

LTV-reliant businesses often overlook the high upfront costs of user acquisition—which account for roughly one-third of the average LTV at a consumer company. Without this crucial consideration, LTV can lead to incorrect forecasting and decisions that are suboptimal for sustainable growth.

As a result, organizations should look to other metrics that may give them a fuller view of their business' health and afford them the ability to scale more sustainably.

One such metric is average revenue per user (ARPU)—a critical means of tracking customer value—particularly effective within their first month. By emphasizing cash flow and immediate data, ARPU encourages users to generate enough revenue early on to scale and optimize immediate, measurable returns and create a healthier revenue stream.

Where LTV Falls Short

In the early days of monetizing our startup, Atly, we lacked long-term revenue and retention data, and we constantly struggled to determine what we were willing to pay for a new customer. If we overspent, we lost money per customer; if we spent a lot, but still less than our LTV, we ran into cash flow crunches that would potentially take us years to recoup; and if we didn’t spend enough, we risked limiting our growth and, ultimately, our revenue. We needed the right strategy to comfortably grow while managing these issues.

This is exactly the problem. Calculating LTV involves forecasting future customer behavior—making assumptions about retention rates, purchase frequency and average order value over time. These speculations can’t account for unforeseen market changes or customer shifts, especially for startups or companies entering new markets that may lack historical data.

LTV based on the slightest miscalculation or insufficient data can inadvertently lead to misalignment with wider operational goals. On top of that, LTV does not adapt quickly to market volatility, competitive actions or changing customer preferences. If LTV calculations aren’t aligned with how a company is actually evolving, the insights may not be so meaningful. Relying on them too heavily can lead businesses to react slowly to immediate threats or opportunities.

The costs of LTV are another downside. Relying solely on this model means that the short-term costs to accommodate a customer are likely to grow even faster than their profitability. And investing resources based on long-term LTV projections ties up capital that could be used for immediate, potentially more profitable opportunities.

Finally, LTV runs the risk of steering companies toward unsustainable practices. High LTV projections can lead companies to overspend on customer acquisition or retention efforts, assuming that long-term profits will offset these costs. If LTV metrics don’t play out as projected, any allocation of resources based on those predictions will be money poorly spent.

Average Monthly Revenue Per User

ARPU offers companies a reliable, month-over-month cash flow metric that aligns with a customer’s very first month. While established businesses with dedicated expansion budgets may still find LTV strategies effective, the ARPU approach is particularly valuable for startups in the early stages of growth.

First, ARPU offers growing businesses more transparency. Unlike LTV, which is often speculative at the time of calculation, ARPU reduces guesswork in the first month of a user’s acquisition. Rather than basing decisions entirely on uncertain future projections, ARPU enables businesses to assess each user's immediate value, providing a realistic snapshot that reflects initial acquisition strategies but isn’t skewed by long-term assumptions.

When we were struggling to decide how much we were willing to acquire a user for, we eventually determined that ARPU was the right metric. But ARPU within the first month, quarter or year? Because we offered a one-week trial, and we wanted to manage cash flow responsibly, we decided on ARPU month one, meaning that all customers acquired would be measured against the revenue generated from them in the first month.

This allowed us to scale safely as we captured any immediate return on advertising spend (ROAS), and we were able to take loans against our accounts receivable to manage cash flow constraints. This netted us a highly manageable cash flow with strong growth potential. We also prioritized other methods to generate revenue in month one, leading us to increase that metric by almost 250% once we made it a focus.

ARPU insights can also be ascertained much more quickly than their LTV counterparts, leading to smarter real-time decisions and enhanced revenue, both short- and long-term. By evaluating user value and other performance metrics in real time, ARPU facilitates data-driven decisions that drive quick wins.

When crafting short-term growth strategies, this not only optimizes marketing and acquisition channels but also makes adjusting user engagement strategies even simpler. Real-time metrics such as ARPU can significantly benefit managers by offering immediate feedback and enabling more targeted adjustments to business strategy and pricing models.

A Better Business Metric

Prioritizing ARPU provides companies with an immediate, realistic view of revenue and acquisition success. This upfront approach focuses on tangible, short-term returns and data, allowing for more responsive decision-making in both marketing and customer engagement strategies. If companies use ARPU to lay the groundwork in the first month of a customer’s lifecycle, they can more confidently consider LTV-related costs and extend their focus to the future.

By justifying acquisition costs early on, businesses can optimize resource allocation and avoid speculative, long-term projections. This strategy not only supports sustainable growth but also helps companies build a resilient revenue stream that can adapt swiftly to market changes.

Planning for tomorrow’s success requires a strong foundation today. LTV can help sell the dream, but when it comes to building a robust business, ARPU is the perfect bedrock.

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