Customer lifetime value (CLTV) is a metric that measures how much profit a customer generates for a business over their entire relationship. CLTV helps businesses understand the long-term value of their customers and optimize their marketing and retention strategies.
To calculate CLTV, you need to estimate the average revenue per customer, the average customer lifespan, and the average customer acquisition cost. The formula for CLTV is:
CLTV = (Average revenue per customer x Average customer lifespan) – Average customer acquisition cost
For example, if a customer spends $500 per month on your products, stays with you for 3 years, and costs you $100 to acquire, their CLV is:
CLTV = ($500 x 36) – $100
CLTV = $17,900
Knowing your CLTV can help you make better decisions about how much to invest in acquiring and retaining customers. You can also segment your customers based on their CLTV and target them with personalized offers and incentives. By increasing your CLTV, you can boost your profitability and grow your business.