Introducing Customer Lifetime Value

5 Min Read.

Introducing Customer Lifetime Value

Predicting how much your customers will spend with you

In business, being able to make accurate predictions is incredibly important. If you can predict what your customers are going to do, you can make decisions that will lead them to take the actions you want them to.

This is where Customer Lifetime Value comes in. Customer Lifetime Value (LTV) is a metric that predicts how much revenue a customer will generate for your business over the course of their relationship with you. CLV is important because it helps you understand which customers are worth investing in and how much you can spend to acquire new customers.

In this guide, By the Numbers will be breaking down everything you need to know about customer lifetime value, including how to calculate it and what it means for your business.

Let’s get started!

What Is Customer Lifetime Value?

Customer Lifetime Value — often shortened to Lifetime Value (LTV) — is a business analytics metric that allows you to predict the total value of a customer, customer cohort, or customer segment over the duration of your relationship with them.

In other words, it answers a simple question: how much money will you make from a particular customer or group of customers?

How We Calculate Customer Lifetime Value

We calculate LTV for a given cohort, segment, or customer using a simple formula:

Where:

Getting Started With Customer Lifetime Value

The goal of LTV is to evaluate the total value of a customer cohort. This information is important because it allows you to calculate the ROI of the marketing campaigns used to acquire the customers in question.

Once you have an ROI, you can compare it to the ROIs of other marketing campaigns to see which one is more effective, or track it over time to keep tabs on changes.

Here’s how you can start tracking LTV with By the Numbers:

1) Select the LTV tab from the left-side menu

You should now have a report visible on your screen:

This report tells you a few key pieces of information:

Customer Lifetime Value is also displayed for every customer segment.

2) Select “Segments” from the customer tab

You should see something like this:

Along with the usual Segment details like AOV and Order Frequency, we now display the Average LTV. This shows how much money the average customer in that segment is predicted to spend with your store over the course of their customer lifetime. In contrast, Customer Value tells you how much money the average customer in that segment has spent with you.

3) Select “View Customers” from any segment (custom or preset)

You should see something like this:

Customer details now include the LTV of each individual customer as well as their total sales. The LTV shows how much a customer is expected to spend while Total sales show how much they have spent with you.

4) Create a custom Segment using LTV

When creating a custom Segment you can select LTV from the Filters dropdown. You should see something like this:

This gives you the ability to filter for customers whose Total Lifetime Value is above or below an amount you decide.

5) Select “Loyalty” from the left navigation bar

You should see something like this:

Customer details in the loyalty squares now include LTV for each group. The LTV shown is an average of what the current group of customers is expected to spend.

What Can You Do With This Information?

Whether you’re looking at LTV for segments or cohorts, it helps you predict the total value a customer will bring to the business. The higher the Customer Lifetime Value (LTV) the more money a customer will bring to the business on average over the entire time they remain a paying customer.

There are a few ways you can use this information:

By the Numbers allows your business to track Customer Lifetime Value along with 20+ other metrics, so you can be sure your decisions are backed by data. It’s free to try for 14 days — no credit card required.

Try it today and start scaling your business with intuitive analytics!