Advertising 5 Min Read
Customer Lifetime Value Calculation: How Much is Your Customer Relationship Worth?
We take a quick look at why calculating your customers' lifetime value is key for any business
There are a number of metrics used to evaluate the success of ad campaigns, and SteelHouse has been doing a deep dive into the data that every marketer should be tracking. We have already covered ROAS, conversion rate, and cost per acquisition, so it’s time to take a look at customer lifetime value
Customer Lifetime Value Definition
Customer Lifetime Value, or CLV, is a marketing metric that determines the overall average amount of revenue a customer provides. In other words, it measures the profit your company can expect to earn over an entire relationship with a single customer. Sometimes referred to as lifetime value (LTV), calculating your customer lifetime value is an important step in fully understanding your customers, as well as making decisions regarding sales, marketing, and product development.
Customer Lifetime Value Calculation
CLV is a projection rather than a metric based on hard numbers, so in order to measure the relationship your business has with a customer you will have to make informed assumptions. Customer Lifetime Value is calculated by multiplying the average time spent as a customer with the average revenue they bring in on a monthly basis. One formula you can use as a baseline for this metric is:
CLV = Average Customer Lifetime Span * Average Customer Value
For example, if a customer spends $100 per month, and continues their relationship with your company for 10 months, their CLV would be $1,000. One thing to keep in mind is that CLV does not take operating expenses into account. However, it does include customer acquisition costs and any other marketing expenses that went into that particular customer.
Customer Lifetime Value Calculator
Because we know just how busy you are, we created this library of marketing calculators. So just plug in the necessary information to calculate your customer lifetime value, and know that you are getting an accurate metric.
What is Considered a Good Customer Lifetime Value?
A good customer lifetime value will depend on your company, industry, and products. It can often be useful to compare any new CLVs against old ones; if they are larger, it can indicate better customer retention. The higher your customer lifetime value, the better﹣high CLVs show that customers love your products, are spending money on them, and staying with you longer term.
Another factor to consider is your cost per acquisition, which indicates how much it costs to get a single customer. The lower your CPA is as compared to your CLV, the better your campaign is performing.
No matter what business you’re in, we bet we can help improve your LCV. Find out how we can help boost your Lifetime Customer Value.
Why Should You Keep Track of Your Customer Lifetime Value?
Calculating your CLV will help your company clearly define your goals regarding marketing and sales strategies. This will ultimately improve many elements of your long term customer relationships by reducing acquisition costs and increasing retention of the customers who provide the most value to your company. One thing to keep in mind is that not all customers are equally valuable. So calculating CLV will allow you increase profit by dedicating more effort and resources towards your higher-value customers.
Looking to Calculate Another Metric?
We compiled a library of the Essential Marketing Calculators that every marketer should use to track the success of their campaigns.
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