Every business' goal is to acquire and retain highly valuable customers and to do this, it's essential that you and your team learn what Customer Lifetime Value (CLTV) is and how to calculate it. Customer Lifetime Value is one of the most important metrics to measure with any growing company. Keep reading as we dive in a little deeper.
What is Customer Lifetime Value?
Customer lifetime value is a measurements used to indicate the total revenue a business can reasonably expect from a single customer account throughout the business relationship. Most businesses use CLTV to identify customer segments that are most valuable to their company. The longer that a customer continues to purchase from a company, the greater their lifetime value becomes. Company's consider a customer's revenue value and compare that to the company's predicted customer lifespan when calculating CLTV.
Why is Customer Lifetime Value important?
Check out a few reasons why understanding your CLTV is essential:
- It directly affects your revenue: the CLTV allows you to serve your customers that contribute the most revenue to your business with products and services that they like which in turn results in them spending more more at your company. Companies that are consistently geared towards customer's success are experiencing more revenue because of increased customer satisfaction.
- It boost customer loyalty and retention: When you consistently optimize CLTV and provide value in the form of great products, loyalty support, and customer service it results in increases loyalty and customer retention.
- It helps you target your ideal customers: Knowing the CLTV of your customers and how much they spend gives your the knowledge to develop strategies as well as target customers who will spend the most at your business.
- It reduces customer acquisition costs: Acquiring a new customer can be costly so it's very important that your business identifies the most valuable customers that interact with your company and nurture them. This will increase customer life time value and reduce customer acquisition costs.
How to calculate Customer Lifetime Value
In order to calculate customer lifetime value you need to calculate the average purchase value and then multiply that number by the average number of purchases to determine customer value. Once you calculate the average customer lifespan, you can multiply that by customer value to determine customer lifetime value.
Customer Lifetime Value = (Customer Value * Average Customer Lifespan)
Let's improve your Customer Lifetime Value
Curious about your business' customer lifetime value ? Get access to a FREE interactive customer lifetime value (CLV) calculator today! Click below to download now. Our team is equipped to develop strategies that can help you improve it.