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As a Shopify store owner, understanding the value of customer retention and acquisition is essential. Customer lifetime value (LTV) is a quantifiable metric of what a customer is worth to your business over their tenure. In this guide, we will discuss how to calculate Shopify LTV and its relation to customer acquisition cost (CAC).
LTV is the amount of money a customer spends over their tenure with your business, which is different from how much they spend on a single transaction. LTV takes into account average customer behaviors, rather than exact values for each individual.
To calculate LTV, there are three components to the traditional formula: how much a customer spends on average on each purchase, how often that customer makes a purchase, and how long they remain a customer. These components make up customer value, and we refer to the last one as the average customer lifespan.
With LTV data, you can make better decisions about how to allocate your marketing budget. Segmentation by marketing channel allows you to invest in profitable channels with reasonable expectations of ROI. LTV benchmarks help you to establish how well your marketing efforts are bearing fruit, and to decide which area of your business you need to focus on. Additionally, knowing a customer's LTV helps you to decide how much attention a customer has earned.
Moreover, by comparing the LTV to the cost of customer acquisition (CAC), you can determine the return on investment (ROI) of your marketing campaigns and adjust your strategies accordingly.
By the Numbers is an excellent app that can help you to calculate LTV. By the Numbers can track every purchase your customers make, giving you accurate data about your customer lifetime value, as well as other useful data points such as Cohort Retention rates and Product Repurchase rates.
By using LTV data, you can make data-driven decisions and optimize your business performance. It's essential to know your Shopify customers' LTV, and with By the Numbers, it's easier than ever.
