Customer Lifetime Value (CLV) is a critical performance measure that all businesses should compute to monitor their progress.
Consider the following questions: Would you want to do business with customers that only write you big cheques once in their lives? Or those who continually pay you modest amounts for a while? The answer is to figure out your CLV.
You’ll be able to answer the above question like an expert by assessing CLV together with Customer Acquisition Cost (CAC). CLV will help your business target its ideal customers, highlight possible weaknesses in your business operation, and improve the longevity of your business.
What is Customer Lifetime Value?
In short, customer Lifetime Value (CLV) is a metric that estimates the net profit a customer can provide for a business throughout their relationship.
“Customer Lifetime Value” is often referred to by many abbreviations in marketing resources, such as “CLV,” “LTV,” or “CLTV.” When marketers talk about “customer equity,” they’re referring to the same thing.
How Do You Calculate CLV?
To determine Customer Lifetime Value most efficiently, first find the average purchase value, then multiply it by the average number of purchases to derive customer value. After that, you multiply the result by the average customer lifespan to get the customer lifetime value.
Customer Value = Average Purchase Value X Average Number of Purchases
Customer Lifetime Value = Average Customer Lifespan X Customer value
Now, you may be wondering what all those measurements are because the method above simplifies a lot of variables.
We’ve simplified those measurements below:
Average Purchase Value
Divide your company’s total revenue during a period (typically a year) by the number of purchases made during that same period to arrive at this figure.
Average Purchase Value = Total revenue/number of purchases
Average Number of Purchases
To get this figure, divide the total number of purchases by the number of consumers (without counting any customer twice) who made purchases during that period.
Average Number of Purchases = Total purchases/number of customers
Average Customer Lifespan
Calculate this figure by averaging the number of years customers have been loyal to your business.
Average Customer Lifespan = Sum of customers lifespans/number of customers
How To Effectively Calculate Your Customer Lifetime Value (CLV)
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Customer Lifetime Value (CLV) is a critical performance measure that all businesses should compute to monitor their progress.
Consider the following questions: Would you want to do business with customers that only write you big cheques once in their lives? Or those who continually pay you modest amounts for a while? The answer is to figure out your CLV.
You’ll be able to answer the above question like an expert by assessing CLV together with Customer Acquisition Cost (CAC). CLV will help your business target its ideal customers, highlight possible weaknesses in your business operation, and improve the longevity of your business.
What is Customer Lifetime Value?
In short, customer Lifetime Value (CLV) is a metric that estimates the net profit a customer can provide for a business throughout their relationship.
“Customer Lifetime Value” is often referred to by many abbreviations in marketing resources, such as “CLV,” “LTV,” or “CLTV.” When marketers talk about “customer equity,” they’re referring to the same thing.
How Do You Calculate CLV?
To determine Customer Lifetime Value most efficiently, first find the average purchase value, then multiply it by the average number of purchases to derive customer value. After that, you multiply the result by the average customer lifespan to get the customer lifetime value.
Customer Value = Average Purchase Value X Average Number of Purchases
Customer Lifetime Value = Average Customer Lifespan X Customer value
Now, you may be wondering what all those measurements are because the method above simplifies a lot of variables.
We’ve simplified those measurements below:
Average Purchase Value
Divide your company’s total revenue during a period (typically a year) by the number of purchases made during that same period to arrive at this figure.
Average Purchase Value = Total revenue/number of purchases
Average Number of Purchases
To get this figure, divide the total number of purchases by the number of consumers (without counting any customer twice) who made purchases during that period.
Average Number of Purchases = Total purchases/number of customers
Average Customer Lifespan
Calculate this figure by averaging the number of years customers have been loyal to your business.
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