Accurately predicting customer behavior is crucial in making informed decisions for your business. Customer Lifetime Value (LTV) is a metric that forecasts how much revenue a customer will bring in over their relationship with your business, allowing you to prioritize high-value customers and optimize marketing spend.
In this guide, we delve into the significance of Customer Lifetime Value, providing insights on how to calculate it and how to leverage it to drive business growth. With a solid understanding of LTV, you can make data-driven decisions and create strategies that will maximize your business’s potential.
Customer Lifetime Value, often abbreviated as LTV or CLV, is a crucial business metric used for predicting the total value of a customer, customer cohort, or customer segment throughout their relationship with your business. It helps you understand how much revenue a customer is likely to generate for your business, which aids in determining the investment you need to make in customer acquisition.
We use a straightforward formula to calculate LTV for a specific customer or group of customers, which is:
Where:
The primary objective of calculating LTV is to determine the complete value of a customer cohort. This is a significant factor as it enables you to compute the Return on Investment (ROI) of the marketing campaigns utilized to acquire the customers in question.
After obtaining the ROI, you can compare it with other marketing campaigns to determine which one is more effective or monitor it over time to keep track of changes.
Here's how you can begin tracking LTV with the help of By the Numbers:
The report should then be displayed on your screen:
This report provides you with several crucial pieces of information, including:
The menu for segments should now be visible on your screen:
In addition to the typical details of a Segment such as AOV and Order Frequency, we now provide the Average LTV. This metric indicates the amount of money that the average customer in that Segment is anticipated to spend with your store during their customer lifetime. Conversely, Customer Value shows you how much money the average customer in that Segment has spent with your store.
You should see something similar to this:
In addition to their total sales, customer details now include each individual customer's LTV. The LTV represents the expected amount a customer will spend while total sales show how much they have already spent with your business.
While generating a custom Segment, you can select LTV from the Filters dropdown. You should see something like this:
With this feature, you can now filter for customers who have a Total Lifetime Value (LTV) that is above or below a specific amount that you decide on.
A screen similar to this should appear:
Each loyalty square displays the LTV for the corresponding group of customers. This LTV value represents the average amount that the current group of customers is predicted to spend with your business.
The information provided by LTV for customer segments or cohorts can help predict the total value a customer can bring to the business. Higher LTV means customers bring more revenue on average for the duration of their customer lifetime. This information can be used in several ways:
By the Numbers provides Customer Lifetime Value tracking along with 20+ other metrics to make data-driven decisions. Try it for free for 14 days, with no credit card required, and scale your business with insightful analytics!
