What is Customer Lifetime Value (LTV)?
Customer lifetime value (LTV) is one of the most important metrics to measure at any growing company. LTV measures the revenue your business makes from any give
How to calculate Customer Lifetime Value (LTV):
Average Revenue Per Account (ARPU) / Customer Churn Rate = Customer Lifetime Value (LTV)
Lifetime Customer Revenue – Lifetime Customer Costs = Customer Lifetime Value (LTV)
Using a simple example, if a customer purchases $1000 worth of products/services from your business over the lifetime of your relationship and the total cost of sales and service to the customer is 500$ the LTV = 500$
LTV helps you make important business decisions about sales, marketing, product development, and customer support. For example:
- Marketing: How much should I spend to acquire a customer?
- Product: How can I offer products and services tailored for my best customers?
- Customer support: How much should I spend to service and retain a customer?
- Sales: What types of customers should sales reps spend the most time on trying to acquire?
LTV is a great indicator for planning future growth, but it can also fluctuate. For businesses with a small number of customers, the estimated value is likely to change from month-to-month due to the small sample size. Churn rate going up or the implementation of new features can also impact its value.
How should you visualize Customer Lifetime Value (LTV)?
At Conversio, we analyzed data gathered from Ecommerce stores using our all-in-one marketing dashboard to determine industry-wide and category-specific benchmarks for average order value (AOV) and customer lifetime value (LTV). So, we reviewed all of the different transactions across 24,353 Ecommerce stores using Conversio in 2016 and identified:
• ۱۷.۹$ million shoppers
• ۲۵.۵$ million receipts
•۱.۴۹۵$ billion worth of transactions
What we discovered was :
• Among all the Ecommerce stores surveyed, the average order value was 58.57$
• And the average lifetime value of each of these customers was 83.73$