Glossary / Customer Life Time Value (LTV)
Customer Lifetime Value (LTV) is a metric that represents the total revenue a business can expect to generate from a single customer over the course of their relationship with the company. It is a measure of the long-term profitability of a customer. To calculate the Customer Lifetime Value, you need to consider the average purchase value, the average purchase frequency, and the average customer lifespan. The formula for calculating LTV is: LTV = (Average Purchase Value) x (Average Purchase Frequency) x (Average Customer Lifespan) For example, if the average purchase value is $50, the average purchase frequency is 2 times per year, and the average customer lifespan is 5 years, the LTV would be: LTV = $50 x 2 x 5 = $500 This means that, on average, each customer is expected to generate $500 in revenue over their lifetime. Customer Lifetime Value is an important metric for businesses as it helps them understand the value of acquiring and retaining customers. By knowing the LTV, companies can make informed decisions about marketing strategies, customer acquisition costs, and customer retention efforts.