How to Calculate Customer Life Time Value
Many of us speak about customer Life Time Value (CLV) and long-lasting customer relationships but still more people don’t know how to calculate the Customer Life Time Value. It’s vital to know about your CLV to understand the value of the customers and make informed decisions.
What’s Customer Life Time Value?
Customer lifetime value is a metric that represents the total net profit a company can expect to generate from a customer throughout their entire relationship. It covers the customer’s initial purchases, repeat purchases, and the average duration of their relationship with the business.
If a customer purchases continuously from you again and again, it’s a good sign that you have a positive CLV and it indicates that you have to spend less amount for customer acquisition cost.
How to Calculate Customer Life Time Value?
Here is the simple calculations
Customer Value = Average Purchase Value X Average Number of Purchases
Average Purchase Value = Total Revenue / No.of. Orders
Average Customer Life Span = Sum of Customer Life Spans / Number of Customers
Then finally here is the formula
Customer Life Time Value = Customer Value X Average Customer Life Span
Now you’re good to go, its time to calculate your CLV to understand the value of your customers. If this post is beneficial then share your comments below