Customer
Customer Lifetime Value (CLTV)
CLTV represents the total amount of money a customer is expected to spend on your products or services during their relationship with your company. This metric helps businesses understand the value a customer contributes over time.
HOW TO MEASURE
To measure CLTV, you need to calculate the average purchase value, multiply it by the average number of purchases over a customer's lifespan, and then multiply that figure by the average customer lifespan.
HOW TO IMPROVE
Enhance Product Value: Improve product features and customer service to increase satisfaction and spending.
Customer Retention: Implement effective retention strategies to extend the average customer lifespan.
Personalization: Use data to personalize marketing and sales strategies to increase customer engagement and purchase frequency.
Cross-Selling and Upselling: Encourage existing customers to purchase additional products or upgrade their services.
FORMULA
CLTV = Average Purchase Value × Average Purchase Frequency × Average Customer Lifespan
EXAMPLE
A subscription service charges $10 per month and the average customer stays for 3 years, typically upgrading twice, which adds an additional $5 to their monthly bill. Thus:
Average purchase value = $15/month
Average purchase frequency = 12 times/year
Average customer lifespan = 3 years
𝐶𝐿𝑇𝑉=15×12×3=$540
DEPARTMENT USAGE
Leadership: For strategic decision-making and forecasting.
Marketing: To determine cost-effective strategies and budget for customer acquisition.
Sales: To prioritize leads based on potential lifetime value.
Customer Success: To identify high-value customers for retention efforts.
Finance: For revenue projections and investment in customer relationships.
Product: To align product development with features that add customer value.
View the collection of Metrics Workshops.