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Lifetime Value

Definition

Lifetime value (LTV, or customer lifetime value) measures how valuable a customer is to your business. Lifetime value is a prediction of the monetary value of a customer’s entire future relationship with a business, and it can help create a budget for acquiring customers based on a customer’s revenue potential.

How do you calculate lifetime value?

LTV is calculated by multiplying the average customer lifespan by the annual value of the customer (how much they spend per year). This helps your business better understand how much you can spend to acquire new customers without negatively impacting profits.

What is the LTV formula?

A quick way to determine CLV /LTV is to multiple annual customer revenue by average customer lifespan. Then, subtract the cost of acquiring them.

How do you maximize customer lifetime value?

5 quick ways to increase average customer LTV /CLV:

  • Improve your onboarding process
  • Keep customers engaged with content that helps them
  • Put customer service first
  • Build unscalable and genuine relationships with customers
  • Solicit and listen to customer feedback

What is customer lifetime value with example?

If it costs you $100 to acquire a new customer (CAC, or customer acquisition cost) and then lifetime value is $575 based on the average purchases they make over the time they’re an active customer, you can likely spend up to $200 to acquire a similar customer and remain profitable.

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