Here’s why you should be measuring your customer’s lifetime value


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In a HYPER-COMPETITIVE MARKET, how do you stay ahead of your competitors? CUSTOMER LIFETIME VALUE (CLV / LTV) is one the most important marketing and business metrics. It’s the key to the


entire customer life cycle. WHAT EXACTLY IS CLV AND WHY SHOULD YOU CARE ? > CLV is the MEASUREMENT of all the FUTURE NET PROFIT your BUSINESS > WILL MAKE from A SINGLE CUSTOMER.


Simply, you can use it to FIND A MEASURE OF THE AVERAGE REVENUE that CUSTOMERS WILL CONTRIBUTE IN THE FUTURE BEFORE THEY CHURN, and use it to DETERMINE HOW MUCH YOU SHOULD SPEND TO ACQUIRE


NEW CUSTOMERS (CAC — or Customer Acquisition Cost). CLV will give you a STRONG INDICATION of your COMPANY’S HEALTH in the LONG-TERM. Is your current acquisition and retention strategy right?


Is it helping achieve sustainable growth? > _Key Stat_ ➯ > 81% of UK MARKETERS that MEASURED CLV have seen THEIR SALES > SKYROCKET. HERE’S A QUICK EXAMPLE TO CALCULATE CUSTOMER


LIFETIME VALUE: Let’s assume you run a business that does pedicures. You have acquired a customer for a pedicure and she uses your service twice per month. Your profit margin for each of the


pedi is 2£. But what about retention rate? How often will the customer keep coming back before they churn? Let’s make an assumption here and say that she comes to your business for 10


months before churning. Now, we’re doing this for one customer, but in theory you should be averaging these values for all of your customers. The first step to calculating CLV is to


calculate churn rate. An average 10 month lifespan means your monthly churn rate is 1/10, or 10%. So, what’s the CLV? Do the math yourself: _CLV = (profit per account or user per month /


churn rate)_ _(Note, there are many more ways to calculate CLV. Many large companies like __Starbucks__ use multiple formulas for CLV and then average them out. We encourage you to look into


these, you can find multiple formulas on the web.)_ So, based on our calculations the CLV should be 4 / 0.1, or a total lifetime value of £40 over the course of 10 months. Now, how much


would you invest to acquire this customer in the first place? Anything, under £40 makes you break even or profitable, unless you crapped the numbers, unless this is not your retention rate,


unless your margin is not that because you have more operational costs and you haven’t measure them, a hundred unless-es which act as the assumptions we are testing. You can realize that


DATA IS UNIQUE for every business. This is why there’s MORE THAN ONE WAY to CALCULATE CUSTOMER LIFETIME VALUE ─ you SHOULDN’T DEPEND on a CATCH-ALL FORMULA. WONDERING WHAT SHOULD YOU DO


NEXT? We’ve laid out the _KEY STEPS_ to help you _MAXIMIZE CLV_: * Can you sell your service in a subscription basis? * Can you package your products, come up with a nice concept and sell a


monthly subscription box? * Do you have any other services you could upsell? * Is there a way to automate or reduce the operational costs of the service fulfillment? You got the point here I


guess. We need to either increase the revenue and the repeatability, decrease the cost OR both. Hope this was helpful. Have questions? Ask away below!