How Does Retention Influence Revenue and Growth Models in Online Businesses?

An e-commerce company is evaluating its customer retention strategies by calculating the 1-year Customer Lifetime Value (CLTV) for two different retention scenarios.

Both scenarios assume an average revenue per user (ARPU) of $100 per month. The company's customer acquisition cost (CAC) is $180.

Calculate the CLTV for each scenario and determine which scenarios have year 1 CLTV greater than CAC.


  • Scenario 1: Month-1 retention rate of 60%, with subsequent monthly retention of 85%.
  • Scenario 2: Month-1 retention rate of 40%, with subsequent monthly retention of 75%.
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