Lifetime Value

Life Time Value or LTV is an estimate of the average revenue that a customer will generate throughout their lifespan as a customer. This ‘worth’ of a customer can help determine many economic decisions for a company including marketing budget, resources, profitability, and forecasting. It is a key metric in subscription-based business models, along with MRR (Monthly Recurring Revenue).

How do you calculate lifetime value?

To calculate customer lifetime value you need to calculate average purchase value, and then multiply that number by the average purchase frequency rate to determine customer value. Then, once you calculate average customer lifespan, you can multiply that by customer value to determine customer lifetime value.

What is the importance of Customer Lifetime Value?

Customer Lifetime Value (CLTV) is one of the most important metrics that businesses track. CLTV, also known as Lifetime Value (LTV), is the amount of money your customer is worth to you over the entirety of your business relationship. Or simply put, it is the total amount of money that a customer will spend on your business over their lifetime. Read the full article for more details.

How do you define customer lifetime value?

In marketing, customer lifetime value (CLV) is a metric that represents the total net profit a company makes from any given customer. CLV is a projection to estimate a customer’s monetary worth to a business after factoring in the value of the relationship with a customer over time.

What is a CLV score?

Simply stated, your CLV score is a numeric representation of how valuable you are as a customer to a given company. If you are a reliable and repeat purchaser of goods and services – without needing to be enticed to buy with a discount coupon – then you’ve probably got a great CLV score with businesses.

Is LTV revenue or profit?

Using revenue instead of profit to calculate your LTV can dramatically overvalue customers, leading you to believe you can spend far more to acquire them than is actually sustainable. However, LTV should always be a measure of profit, not revenue.