Lifetime Value

Lifetime Value (LTV), also known as Customer Lifetime Value (CLTV), is a prediction of the net profit attributed to the entire future relationship with a customer. It helps a company understand how much revenue they can expect one customer to generate over the course of the business relationship.

The longer a customer continues to purchase from a company, the greater their lifetime value becomes. It’s an important metric because it costs less to retain existing customers than it does to acquire new ones, so increasing the lifetime value of a customer is very profitable for any business.

A simple way to calculate LTV is to multiply the average purchase value, the average purchase frequency rate, and the average customer lifespan.

For example, if a customer makes an average purchase of $50 twice a year and remains a customer for an average of 5 years, their LTV would be $50 X 2 X 5 = $500.

Companies can increase their LTV by enhancing their customer support, creating loyalty programs, offering cross-sells and upsells, improving the quality of their product or service, and keeping customers satisfied to promote retention and long-term relationships.