LTV (Lifetime value)
Customer lifetime value (CLV) is the expected sum of all revenues a customer will generate for your business. It is an important metric that must be considered in marketing decisions.
If you predict the lifetime customer value correctly, you can decide on the expenditure you will make to acquire a customer based on this information. Increasing revenue from an existing customer is more cost-effective than acquiring new customers.
For this reason, your probability of success is expected to be higher in business models and scenarios where lifetime customer value is higher.
How is lifetime customer value calculated?
There are many different formulas and approaches used to calculate lifetime customer value.The average lifetime revenue you get from a customer depends on the ratio of average order quantity to recurring orders, and the length of time you expect to retain the customer.
The Simple Formula is;
Customer Lifetime Value = Average Order Value X Purchase Frequency Rate X Average Customer Lifetime
In a monthly subscription model, you can calculate a customer's lifetime value by multiplying the subscription price by the average subscription period.
For your e-commerce site that sells products, you can consider the recurring order rate instead of the subscription period. You can plan the maximum expenses you will make to gain customers by evaluating the shopping that your average customer will make from you throughout the entire relationship process, together with your profitability rate.
Tracking lifetime customer value helps you focus on what you need to do to retain and keep your current customers happy.
Lastly, it is important to remember that the lifetime value of a customer to your company may not be limited to the earnings they provide to you through their relationship.
For your information about customer engagement tips check out Cinema8 blog;