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Lifetime Value

What is lifetime value?

Lifetime value is an essential metric that helps you to optimize your marketing budget and set goals regarding your customer acquisition costs. It is the predicted net profit you can expect from any given customer over the course of your business relationship. Remember that net profit includes all the expenses associated with the individual customer. There are a few ways that you can use to calculate Lifetime Value, and it may be helpful to take an average between at least two of the methods. Here are two of the more straightforward calculations using a month as the time frame for averages:1) 12(average customer value per month) x average customer lifetime in months2) average customer lifetime in months (12 x average cart value x average purchases per month x gross margin rate per customer)

How can I use lifetime value?

Knowing your lifetime value is essential when it comes to the long-term success of your business. Firstly, you need to know where your business stands in order to predict where it is going. Calculating your lifetime value on a regular basis will allow you to benchmark to see if your efforts are indeed pushing that needle forward. You could also segment your customers by acquisition channel and then calculate their lifetime value. This information will show you which sales channels access the most profitable customers as well as what an individual customer from a specific channel is worth to your business. This information allows you to focus your marketing efforts where they will have the greatest impact. Segmenting your customers by demographic metrics can also show you who and where your most valuable customers. This will allow you to tailor adds or blogposts to the demographics that are most important to your business.