What is Lifetime Value (LTV)?
LTV, or Customer Lifetime Value, is a metric that estimates the total revenue a business can expect to generate from a single customer throughout their entire relationship with the company. This value takes into account factors such as the customer's purchase frequency, average transaction value, and the duration of their relationship with the business.
LTV is a crucial digital marketing metric for businesses because it helps them understand the long-term value of their customers and make informed decisions about customer acquisition and retention strategies. By focusing on LTV, companies can allocate resources more efficiently, ensuring they target the right customer segments and invest in retention efforts that maximize profitability.
Understanding the total value of an added customer is crucial knowledge for your team. With the Customer Lifetime Value metric, you can monitor just how much revenue every new customer will bring into the company throughout their lifetime.
Customer Lifetime Value (LTV) Formula
LTV = APV x PF x CL
Calculating LTV involves three primary variables:
- Average Purchase Value (APV): The average amount a customer spends per transaction.
- Purchase Frequency (PF): The average number of purchases made by a customer within a given time period.
- Customer Lifespan (CL): The average length of time a customer continues to do business with the company.
Example of KPI target
CEO, CMO, CFO, Marketing Manager, Sales Manager
Why Customer Lifetime Value (LTV) is Important
By understanding and tracking LTV, businesses can make more informed decisions about marketing, sales, and customer service initiatives, ultimately leading to higher customer retention, increased revenue, and long-term growth.
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