Customer Lifetime Value
Customer lifetime value is the profit a customer generates for a company over the entire duration of their relationship. The metric is also known as LTV, or lifetime value.
A simplified formula for calculating customer lifetime value is average order value × number of purchases per year × length of the relationship. A more precise calculation takes into account profit margins, discounts, and servicing costs. For example, if a customer pays 15,000 rubles per month and stays with a service for two years, their lifetime revenue value is approximately 360,000 rubles.
Why Calculate Customer Lifetime Value
LTV helps a company understand how much it can afford to spend on acquiring a single customer. It serves as a benchmark when choosing channels, as some generate quick sales while others attract customers who stay for a long time.
How to Increase LTV
- Focus on retention: the longer a customer stays, the more revenue they generate.
- Offer complementary products and upgraded plans.
- Increase the average order value without losing customer loyalty.
- Reduce servicing costs through automation, including workflows, knowledge bases, and chatbots.