Financial
Lifetime Value (LTV)
Lifetime Value (LTV) represents the total revenue a company can reasonably expect from a single customer account throughout the business relationship. It reflects the financial value of a customer and helps assess the long-term viability of customer acquisition strategies.
HOW TO MEASURE
LTV is calculated by multiplying the average revenue per customer by the average customer lifespan. It often involves analyzing the frequency of purchase, average purchase value, and customer retention rates.
HOW TO IMPROVE
Enhance Customer Retention: Implement loyalty programs and regular customer engagement to extend the average customer lifespan.
Increase Purchase Frequency: Encourage more frequent purchases through promotions or bundled offers.
Upsell and Cross-sell: Offer complementary products or premium services to increase average revenue per transaction.
Improve Customer Satisfaction: Deliver high-quality products and exceptional customer service to boost satisfaction and loyalty.
FORMULA
LTV=Average Revenue per Customer×Average Customer Lifespan
EXAMPLE
Assuming a subscription-based software company has an average revenue of $200 per customer per year and the average customer stays for 5 years, the LTV would be: $200×5=$1,000
DEPARTMENT USAGE
Marketing: Utilizes LTV to tailor marketing strategies and determine acceptable customer acquisition costs.
Sales: Uses LTV to prioritize leads and focus efforts on potentially high-value customers.
Finance: Incorporates LTV into financial forecasting and budgeting.
Customer Success: Employs LTV data to strategize on customer retention and relationship management.
Leadership: Leverages LTV for strategic planning and to evaluate the overall business model.
LTV is a crucial metric for understanding the long-term value generated by customers and for guiding strategic decisions in marketing, sales, and customer service.
View the collection of Metrics Workshops.