Which factor is essential for calculating Lifetime Value (LTV)?

The average monthly subscription fee is crucial for calculating Lifetime Value (LTV) because it directly impacts the revenue generated from a customer over time. LTV is typically calculated by estimating the total revenue that a customer is expected to generate throughout their relationship with a company. When you know the average fee a customer pays on a monthly basis, you can project future income based on the expected duration of the customer relationship.

For example, if a customer subscribes to a service for a year, and the average monthly fee is known, you can simply multiply the monthly fee by the number of months to find the yearly revenue and use this figure to determine LTV. This helps businesses understand how much they can afford to spend on acquiring new customers while still maintaining profitability.

While the other options are certainly factors that can influence a company's overall strategy and decision-making, they do not directly deal with the core calculation of LTV. The cost of acquiring new customers is important for evaluating profitability but does not factor directly into the LTV calculation itself. Similarly, overall market size and the percentage of returning customers provide context for market conditions and customer behavior, rather than serving as fundamental components of the LTV calculation.